- 1). Enter gross oil royalties before reduction for fees, commissions and expenses in box 2 on Form 1099-MISC. Do not enter working interest royalties or surface royalties in box 2.
- 2). Report surface royalties paid in box 1. Surface royalties are payments to landowners who have contracted out the right to drill for oil beneath their land and do not have a stake in the drilling company.
- 3). Record royalty payments to participants in a working interest in box 7. When a landowner owns a percentage of interest in an oil company drilling on his land, he is said to have a working interest. The owner is paid a royalty on production revenues based on the percentage of working interest owned.
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