Is software considered goods or a service for 1099-MISC reporting? What about any support for the software?


Whether payment for software is reportable depends on the particulars of what you bought—the payment could be for merchandise, services or royalty (and sourcing rules vary, though if you bought the software in the U.S., it’s not an issue).  

If you bought packaged or off-the-shelf software, then it is considered merchandise and is not reportable. If you bought custom software developed for your company, then the IRS considers that payment for services and it is reportable. There is also a possible royalty classification, if you are reselling the software, though it does not sound like that’s the case here.

But note: Software support and maintenance is considered a service and is reportable. If the purchase of your software system includes maintenance, then the whole payment is reportable (even if the software was off the shelf). This is because services are reportable, along with any parts necessary to perform the services. According to an IRS Information Agent we spoke with, the software maintenance services cannot be performed without the software itself, meaning that a single purchase for software and maintenance is reportable.

If the maintenance was purchased separately from the off-the-shelf software, then payment for the former is reportable but the software purchase payment is not.

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