When Is a 1099 Required for a Finder's Fee?

A Form 1099 is required under certain circumstances.

A finder's fee is typically a fee paid by a real estate broker or, sometimes, a service that places people in apartments, in exchange for finding a piece of property. Under certain circumstances, depending on the amount and type of service performed, a business or entity must issue a Form 1099-MISC to a person who was paid a finder's fee.

Business Requirement

Only payments made in the course of business trigger the need to issue a 1099-MISC. If a finder's fee is paid in a personal capacity, as opposed to being paid by a business in a business transaction, a 1099-MISC isn't required. For example, if a person pays a finder's fee to a friend, and the person isn't paying the fee from a business, the fee is offered in a personal capacity. Under the tax laws, you're engaged in a business if you operate for gain or profit. However, businesses registered as nonprofit organizations are also considered businesses in this regard.

Amount

If a finder's fee, or the total of multiple finder's fees, is more than $600 in a calendar year, a 1099-MISC must be issued by the business owner paying the finder's fee. Under the tax law, a business must issue a 1099-MISC when more than $600 is paid in rents, services, prizes, awards or medical and health care payments, among others. The IRS considers a finder's fee a service.

Attorney's Fees

Finder's fees are sometimes paid to attorneys and may be considered payment for an attorney's services. The IRS requires that a business issue a 1099-MISC when more than $600 is paid for attorneys' fees to a law firm or individual attorney. If the business paid the finder's fee to an attorney, the amount must be listed in Box 7 on the 1099-MISC.

Exceptions

The IRS doesn't require that a business issue a 1099-MISC if the transaction triggers certain exemptions. For example, if the finder's fee is paid to a corporation, a 1099-MISC isn't required unless the corporation is a law firm. Another exemption is when a finder's fee is paid to an employee as a part of wages.

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