What's a 1099: Everything You Need to Know
A 1099 form is put out by the Internal Revenue Service (IRS) that reports other income received through sources other than employment. 8 min read
What's a 1099?
A 1099 form is put out by the Internal Revenue Service (IRS) that reports other income received through sources other than employment. The IRS refers to 1099s as information forms. They serve as a record that reflects income given to someone by a person or organization that they are not formally employed by.
The most important part of 1099 is that it shows the income that was paid during the last year. People receive 1099 forms for different reasons due to the different types of income that there are.
It is another option for stating income besides the W-2. Taxpayers and businesses may not appreciate 1099 because it is an extra form. But the IRS appreciates it. 1099 is another form that is connected to the tax return and serves as evidence that income is paid to a specific taxpayer. Since 1099 also includes the taxpayer's social security number (SSN), the IRS is able to check to see if an income has been reported.
Receiving 1099 does not mean that taxes are due on the income that is reported on the form. Everyone's tax returns are different because they depend upon individual circumstances. Tax components that dictate the amount of tax an individual must pay include:
- Type of 1099 received
What are the Different 1099 Forms, Reporting Requirements, and Due Dates?
In order for 1099 to be issued, there is typically a minimum income threshold that must be exceeded prior to creating 1099. Exceptions to this rule do apply. Forms that do not have a minimum amount to be sent out are:
- SSA- 1099
Every 1099 form that is generated by an individual or entity must be sent out by January 31st of the new year. The 1099-B is the only type that is not due to this date.
A 1099-A form stands for Acquisition or Abandonment. Acquisition or abandonment applies to secured property. Individuals typically receive these in association with a mortgage that is canceled by a lender in part or completely. Homes that are part of a short sale also trigger a 1099-A to be sent to a taxpayer.
The 1099-B is sent out for income received related to broker or barter exchange transactions. While all other 1099s are due by January 31st, the 1099-B has an extended due date so it's not due until February 15th of the new tax year.
A 1099-B form is issued for the sale of different securities and certain types of trades are bartered. These are typically exchanges done via websites. The exchange itself prompts the 1099-B. However, if the barter is completed directly with someone, the form might not be sent out. In this case, the income may simply need to be reported on 1099.
1099-C is for Cancellation of Debt, it has a minimum reporting amount of $600. Individuals will see this is they settle credit card or other types of debt.
A 1099-CAP is for Changes in Corporate Control and Capital Structure. Most people won't see this type of form because the minimum entry is $100 million dollars. But if a share owner invests in a company that has a big share a 1099 CAP may show up.
A 1099-DIV is for Dividends and Distributions. This is a form that has a small reporting revenue of just $10.
A 1099-G is for Certain Government Payments. Any money received from the government at the local, state or federal level may be subject to a 1099-G including a:
- Tax Refund
If you received money from the state, local or federal government, including a tax refund, credit or offset, you might get a 1099-G.
A 1099-H is for Health Coverage Tax Credit (HCTC) Advance Payments
A 1099-INT is for Interest Income. Banks usually send this out if someone earned $10 or more in interest. a $600 reporting threshold is required for certain business-related interest earned. This applies to a bank, brokerage or other financial institutions.
A 1099-K is for Merchant Card and Third-Party Network Payments, the minimum amount that should be reported for this type of form is $20,000
A 1099-LTC is for Long-Term Care and Accelerated Death Benefits. This type of 1099 comes in the mail if you have long term care and its benefits were paid by the insurer. Payments from the accelerated death benefits in a life insurance policy are also under this type of 1099.
A 1099-MISC is for Miscellaneous Income and it is the type of 1099 that is used when others don't apply. Freelance and independent contractors receive these types of forms after getting at least $600 in payment. Other types require $10 as the reporting amount for things like royalties, awards, and prizes.
A 1099-OID is for Original Issue Discount, the minimum amount that should be reported for this type of form is $10. This form is usually used for financial products like bonds or notes that were not purchased at their set or face value. It must have a maturity date of at least one year if not more.
A 1099-PATR is for Taxable Distributions Received From Cooperatives, has a minimum reporting of at least $10 and is for those who belong to a co-op that received $10 in patronage dividends.
A 1099-Q is for Payments From Qualified Education Programs and it's for school-related payments that are paid to a parent, child or child's school from a 529 education savings plan. Since money in a 529 is not usually subject to taxes when they're used for specific education expenses, it is just for record purposes.
1099-R is for Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The minimum reporting amount is $10. People typically receive these when they receive money from a:
- Retirement plan
- Profit-sharing program
Since quite a few retirement plans are tax-advantaged, a 1099-R may be for recording purposes. But if a loan was taken on it or permanent or total disability was taken, a 1099-R may be considered a distribution.
A 1099-S is for Proceeds From Real Estate Transactions. It has a reporting threshold of $600. The form is necessary when a home sale is closed or real estate is exchanged. The proceeds of the sale or transfer are reported but aren't always taxable.
A 1099-SA is for Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. This comes in the mail if someone receives a payment from a health savings account, medical savings account or Medicare Advantage for certain medical expenses. It isn't subject to tax if used for approved medical expenses. It just proves money left the account and was paid to the individual.
The RRB-1099 is for Railroad Retirement Board Statement.
The SSA- 1099 is for Social Security Benefit Statement
Independent Contractor Income
Independent contractors do not receive W-2s from clients or companies they work for independently because they are not considered employees. Instead, a contractor receives 1099 (MISC most commonly) for every job over $600 that they complete during the tax year. Examples of people who receive 1099s are:
- Freelance writers
- Working on a contract basis
- Lyft or Uber Driver
As an independent contractor, you have the right to control what you work on and how it will be done
Any independent contractor may receive at least one 1099 form every year.
The government requires that organizations send their independent contractor's 1099-MISC forms by January 31st, indicating the income paid to each contractor over the prior year.
Any jobs under $600 don't require a 1099 but the income must be accounted for. As far as taxes are concerned, independent contractors have to pay their taxes in full. Unlike with a regular job, taxes in independent contracting jobs are not deducted from the amount paid. This means the contractor must pay their taxes in full. If more than $1000 in taxes are owed, the contractor must sign up for quarterly tax payments.
An independent contractor needs to estimate his/her tax liability based on the most recent quarter and use a 1040-ES form to make payments
1099s for Interest and Dividends
1099 is sent out when those who own investments or mutual funds receive money from interests and dividends during a tax year. Interest and dividends are a payment of a company's earnings to those who hold the stock as opposed to income that is generated from selling off stocks.
Interest payments from banks and financial institutions are usually subject to tax. These are reported to you through a 1099-INT form.
The federal and state governments are equally responsible for reporting income that it pays to taxpayers.
Unemployment benefits and state income taxes are usually reported on a 1099-G from the applicable government agency. Unemployment income received must be reported using the entire amount. State income taxes refunds, on the other hand, are only reportable if a deduction was claimed in a previous tax year.
Withdrawals from a Retirement Account
Withdrawing money from an IRA is taxable most of the time. When a 1099-R is received it will report all of the withdrawals from the account during the year that the tax return is being prepared for. It arrives prior to the tax return due date.
The 1099-R will also show if any payments have been received from other accounts like pension plans, annuities, and profit sharing plans. The form may reflect the entire amount and show that a certain amount of federal tax was withheld on it.
The 1099-C for Debt Cancellations
Debt cancellations prompt the issuance of a 1099-C in most cases. When a debt is canceled, no money is actually made by the individual. But the IRS does treat it as taxable income. This occurs when a creditor who is owed by a person cancels all or a part of a debt that is outstanding.
The credit card company or lending institution sends the 1099-C out after the balance on the credit card, loan or other financial obligation does not have to be paid back anymore. It shows the amount of debt canceled which may need to be reported on a tax return. This varies depending on the individual tax situation.
If your credit card company (or other lending institutions) no longer requires you to pay your outstanding balance, it may send you Form 1099-C to report the amount of debt it cancels and you may need to report this amount on your tax return.
Other Things to Know About 1099
Since the IRS considers any 1099 payment as taxable income, you are required to report your 1099 payment on your tax return, meaning you still need to report you 1099 payment even if I did not receive a 1099 Form.
Don't assume you're off the hook for reporting income if you don't receive a Form 1099 by February. They can come as late as April and the IRS will track if 1099 was received and not reported using the taxpayer's social security number.
If you forget to report 1099, the IRS will send you a computer-generated letter billing you for the taxes.
Even if you don't receive a Form 1099 you expect, you don't need to ask for it, just report the amount of income on your tax return and IRS computers will have no problem with that.
The Key to Forms 1099 is IRS's matching.
Every Form 1099 includes the payer's employer identification number and the payee's Social Security number and the IRS matches Forms 1099 with the payee's tax return.
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