1099 forms are federal income tax information forms from businesses and other institutions to document certain financial transactions conducted during a tax year. The forms are filed with the U.S. Internal Revenue Service (IRS) – and also with some state tax departments, if required. Copies of 1099s are also sent to individual taxpayers to help them total their income from various sources and to help calculate their taxes accurately.
Specifically, the 1099 series reports all earnings and proceeds other than wages, salaries and tips, which are reported on the federal W-2 form. There are more than 20 different versions and variants of the 1099 form, but the most common is the 1099-MISC.
Those who receive 1099s are expected to hold onto them and file copies of them with their personal income tax returns every April 15 or every quarter, whichever applies. Because taxes are not withheld from wages of 1099 employees, many of those workers can find financial trouble by failing to save the necessary money to pay their annual federal taxes.
Types of 1099 Forms
The 1099-MISC is given to freelancer who are typically self-employed and to independent contractors so that they can keep track of compensation from a particular payer over the course of a tax year. Under federal law, a business does not have to send out a 1099 to someone unless that person earned more than $600 in a calendar year.
People who receive 1099-MISC forms are not considered employees. That means businesses are not liable for paying a share of state or federal income taxes or for deducting any payments to the Social Security and Medicare Trust Funds.
Recipients come from a variety of trades and professions, including:
- And other independent workers are generally compensated on a per-job basis.
Payments to these recipients include fees, commissions, prizes, awards, and honorariums, as well as compensation for repairs, maintenance, services rendered, etc.
Other common 1099 forms include:
- Form 1099-DIV: Banks and other financial institutions use it to report investment income.
- Form 1099-INT: This is to report interest income.
- Form 1099-G: This lists government payments like unemployment benefits and tax refunds.
- Form 1099-R: This documents payments from annuities, pensions, retirement plans and profit-sharing plans.
- Form 1099-C: Used whenever a taxpayer writes off debts exceeding $600.
- Form 1099-Q: Documents payments from Qualified Education Programs.
- Form SSA-1099: Records Social Security payments.
- Form 1099-S: Reports proceeds from rental income and other real estate-related investment and transactions.
- Form 1099-B: Reports proceeds from broker and barter exchanges.
Generally, payers are required to submit 1099s to their payees by January 31 of each year, with information forwarded to the IRS soon after. Penalties are assessed on those who file incorrect returns, those who don’t remit correct payee statements in a timely manner and to those who file fraudulent returns.
The IRS matches a payee’s tax returns with received 1099s to discover any unreported or under-reported income on which self-employment tax payment is required. Discrepancies will often initiate a tax audit and/or penalties.