What Is a 1099?
A Form 1099 is a series of documents required by the Internal Revenue Service (IRS) to report an information return. The term information return is used in contrast to tax return, although the two need to be filed together.
Whereas a Form W-2 is used to report wages, salaries, and tips, a 1099 provides information regarding other various types of income. Examples of these varieties include self-employment, rental property income, sales proceeds, prizes or rewards, royalties, interests and dividends, medical and healthcare payments, among others.
The main purpose of the document is to ensure the IRS has information pertaining to individual’s businesses, household, and income sources relevant to tax liability. When preparing a tax return, the IRS requires the inclusion of all 1099 income and enforces income tax on it.
Who Should File a 1099?
Any person engaged in a trade or business who makes reportable transactions during the calendar year must file an information return to report those transactions to the IRS. A 1099 information return is most commonly used by independent contractors, real estate investors, estates, trusts, and corporations. A worker earning a salary or wage will have their annual earnings reported by their employer on a year-end Form W2. However, individuals who are self-employed or independent contractors will receive a Form 1099-MISC from each of their clients. Examples of these positions include freelance writers, consultants, or artists hired out to companies or individuals on a contract basis. The IRS defines businesses or trades as engagements that operate for a gain or profit.
Each payer must complete a 1099 Form for each covered transaction. The law provides various dollar amounts under which no 1099 reporting is imposed. For example, independent contractors who receive less than $600 from the payer during the applicable year are not required to file a Form 1099. For more categories pertaining to 1099 information returns, read through the variations section below.
What are the 1099 Filing Requirements?
Informing the IRS about reportable transactions is mandatory, and failure to do so can lead to penalties. Information returns must be filed by a particular date. A 1099 is used to report all various incomes on a calendar year (January 1 through December 31) basis, regardless of the fiscal year used by the payer or payee for other Federal tax purposes. Therefore, they must be filed with IRS by February immediately following the year in which the income or proceeds are paid. However, a person or entity who pays an individual is responsible for sending the individual the appropriate 1099 form by January 31. The IRS requires four copies of each Form 1099 filed: one for the payer, one for the payee, one for the IRS and one for the State Tax Department. One stipulation is for filers with 250 or more returns, who must file them electronically with the IRS. The IRS considers any 1099 payment as taxable income, and requires you to include this information on your tax return. Therefore even if a contractor made less than $600 and does not receive a 1099-MISC form, they are still required to report the amount as self-employment income. Personal payments and business travel allowances are not reportable.
Are There Variations of 1099 Forms?
There are many varieties of 1099 forms, and each is used to report a different source of income. Most individuals will file a 1099-MISC form to report earnings outside of their employer’s wages and salaries. These are issued by employers who issued at least $600 in payment to non-employees.
Payments made with a credit card or payment card and certain other types of payments, including third-party network transactions, must be reported on Form 1099-K by the payment settlement entity and are not subject to reporting on Form 1099-MISC. 1099-INT are issued by the payer of interest income (typically a bank, financial institution, or government) to recipients who have received over $10 in interest dividends. Investment fund companies will file Form 1099- DIV to report dividends and distributions. A lender might file a 1099-A for the abandonment or acquisition of a secured property, or a 1099-C for the cancellation of debt in the amount of $600 or more. Alternatively, a broker must file a 1099-B to report the proceeds from broker and barter exchange transactions in any amount.
Health insurance advance payments are considered reportable income, and are to be filed by the provider of health insurance coverage using Form 1099-H. Insurance companies will also report long-term care benefits in any amount using 1099-LTC. Custodians file 1099-R for distributions from pensions, annuities, retirement plans, IRAs, or insurance contracts of at least $10. With regards to real estate transactions, such as the sale of property, Form 1099-S is used to report any proceeds of $600 or more. 1099-S is filed by the person responsible for closing the transaction.
If no one is responsible for closing the sale, it goes in order of mortgage lender, the transferor’s broker, or the transferee. For a comprehensive list of all Form 1099 variants, consult the IRS website.
How Do I File a Form 1099?
Blank 1099 forms can be found on the IRS website. You can also find Form 1099-R within our Tax Form Library. Be sure to declare each payment in the proper box, because the IRS uses this information to determine whether the recipient has properly reported the payment and determine the applicable amount of income tax. If you have income reported on a 1099, you will also need to file a Form 1040 or 1040A for your tax returns. For an easier filing experience, use one of our licensed professionals to help prepare your taxes. We can determine the correct form for you to use and help you fill it out. Using Community Tax, you’ll save time and energy by having to not worry over which numbers to enter and where. We can guide you through the information, check all the math, and make sure the proper forms are filled out so you can avoid costly mistakes. Contact us today for a free consultation.