22

I recently signed a Mutual Termination of Lease agreement with a landlord who purchased the complex I was living in (CA,USA). Part of the termination of lease agreement specified a large payment for relocation assistance. The agreement has been executed.

When I went to pick up the payment, the landlord wanted me to sign a form containing my legal entity name, SSN/Federal ID, signature, name, date, etc. The form states "In order to comply with federal reporting regulations, please provide your SSN or TAX ID which will be used to determine the necessity for filing Form 1099 for payments made to you."

Is this legal? As an individual who is not familiar with income tax law, I don't understand why a company would report the payment using Form 1099 (I'm not their employee, only their tenant).

Also I would like to understand how such a payment for relocation assistance could be classified - will I have to pay income tax?

Appreciate your thoughts or guidance.

52

I believe it's not only legal, but correct and required. A 1099 is how a business reports payments to others, and they're required by the IRS to send them for payments of $600 or more (for miscalleneous payments like this). The payment is an expense to the landlord and income to you, and the 1099 is how that's documented (although note that if they don't send you a 1099, it's still income to you and you still need to report it as such). It's similar to getting a 1099-INT for interest payments or a 1099-DIV for dividend payments. You'll get a 1099-MISC for a miscellaneous payment.

If you were an employee they'd send you a W-2, not a 1099.

  • 1
    if you moved more than 50 miles and got a new job, you could likely deduct the same amount as a relocation expense. It doesn't seem like they moved you that far, though. – ps2goat Sep 22 '15 at 20:34
  • Exactly what I needed to know. Thanks a ton for the clarification – octagonC Sep 23 '15 at 7:28
21

It is legal. They're probably going to give you a 1099-MISC, which is required of businesses for many cash payments over $600 in value to all sorts of counterparties. (Probably box 3 of 1099-MISC as is typical in "cash for keys" situations where one is paid to vacate early)

A 1099-MISC is not necessarily pure income, but in this case, you do have money coming in. This money isn't a return of your security deposit or a gift.

The payment could possibly be construed by you as a payment to make you whole, but the accounting for this would be on you. This is not a typical situation for IRS reporting.

However, if you are uncomfortable with potentially explaining to the IRS how you implemented advice from strangers over the internet, the safest course is to report it all as income. Look at it this way: you did enter into a mutual contract, where you were paid consideration to release your leasehold interests in the property.

  • 1
    That's the only way to look at this. This is not as uncommon as you think, and yes - it is income for consideration. – littleadv Sep 22 '15 at 5:38
  • 11
    +1... "if you are uncomfortable with potentially explaining to the IRS how you implemented advice from strangers over the internet" – Joel Sep 22 '15 at 7:32
  • 2
    @Joel "...if you are uncomfortable with (...) advice from strangers over the internet..." - hire an accountant to counsel you. – Mindwin Sep 22 '15 at 12:45
  • 1
    @AaronHall, to your first comment, I wasn't construing "rent paid" as an expense. If it was me, I could possibly sleep at night reporting certain moving expenses as certain expenses in certain areas in my own tax return. But, if the OP asks "is a 1099 legal" then I would not be able to sleep at night if I were to provide them with a cookbook. – user662852 Sep 22 '15 at 15:15
  • 3
    @AaronHall, to your second comment, a landlord who gives up on pursuing back rent (and formally stops any collections or lawsuits) is on firm legal ground issuing a 1099-C to the ex-tenant for the amount of the forgiven debt. mrlandlord.com/landlordforum/display.php?id=14135469 – user662852 Sep 22 '15 at 15:21

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.