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27 February 2020 / Accounting Tips

What Is a 1099 Form?

27 February 2020 > Accounting Tips

What Is a 1099 Form?

As you prepare to file your taxes for this year, you may receive 1099 tax forms in the mail. A 1099 form may be confusing to you, if you’re not used to what it looks like or how it works, but its function is much simpler than it first appears. 

In this guide, we’ll discuss what 1099 forms are, how they work, and what you should do if you receive 1099 forms from individuals or entities. 

1099 Form: The Basics

A 1099 form is a form from the IRS used to report various types of income other than income from an employer. If you make wages, salaries, and/or tips, you’ll need a W-2 form. For all other forms of income, you could receive a 1099 form. This serves as a record of the income you’ve made, which you’ll need as you’re reporting that income and paying taxes on it.  

Subtypes of 1099 Forms

There are many different types of 1099 form available, as different types of income have different reporting requirements. 

The two most common types of 1099 form are the 1099-MISC and the 1099-INT: 

  • 1099-MISC.

    With the 1099-MISC form, the “MISC” stands for miscellaneous. It’s an appropriate name, considering this form is used to report a wide variety of different types of income. If you receive money that doesn’t fit into any of the other standard categories, you’ll receive a 1099-MISC. Your 1099-MISC form is also specifically used for a few different types of income, such as money from awards or prizes.

     

  • 1099-INT.

    The “INT” stands for interest. You’ll get a 1099-INT form from your bank, brokerage, lender, or other financial institution if you’ve collected more than $10 in interest for a given period.

     

However, there are other varieties of 1099 form that may apply to you. 

Consider these: 

  • 1099-A.

    Form 1099-A is provided to you by a mortgage lender if they canceled some or all of your mortgage. You’ll also get one if you participated in the short sale of your home. This is because any canceled debts count as income, as far as the IRS is concerned. This income is usually taxable.

     

  • 1099-B.

    Form 1099-B is used to cover the sale of many types of securities. It’s also useful for some types of online bartering, though you won’t have to file a 1099-B form if you barter with someone directly.

     

  • 1099-C.

    Remember, canceled debt is considered taxable income in many cases. A 1099-C form is provided by a credit card issuer if you end up settling your debt, or negotiating your total amount down. You may be responsible for the amount of money the lender forgave.

     

  • 1099-CAP.

    The 1099-CAP form is for reporting income (in the form of cash, stock, or other property) that you received as part of a corporate acquisition. If you held shares in a company that was acquired or reorganized itself and you profited from it, this is the form you’ll need.

     

  • 1099-DIV.

    is relatively common, and is used to keep track of dividends you received from stocks, index funds, and similar sources. Note that the dividends you receive from a credit union are often considered interest, and therefore require a 1099-INT.

     

  • 1099-G.

    As we go down the alphabet, the 1099-G is made to report income you received from the government. These include things like tax refunds, credits, or offsets from the previous year. It may also apply to your unemployment income.

     

  • 1099-LTC.

    LTC stands for “long-term care.” You’ll receive this 1099 form if you received long-term care benefits from an insurance provider. This form will also apply to any payments you received from accelerated death benefits of a life insurance policy.

     

  • 1099-NEC.

    The 1099-NEC is a new form that will apply moving forward to people who worked for a business but weren’t employees. If you’re a

    , this is the form you can expect to receive in early 2021 for tax year 2020.

     

  • 1099-OID.

    The 1099-OID form is for people who bought bonds, notes, or similar financial assets at a discount to the full redemption value. This only applies to financial instruments with a maturity duration of a year or more.

     

  • 1099-PATR.

    The 1099-PATR form will apply to you if you received $10 or more in patronage dividends for a co-op.

     

  • 1099-Q.

    The 1099-Q form will apply to any money you, your child, or your child’s school receives from a 529 account. Most of the time, these funds aren’t taxable, so this is merely for record keeping purposes.

     

  • 1099-R.

    The 1099-R form is for distributions you received from retirement plans, pensions, IRAs, annuities, and profit-sharing programs (as well as a few other related things). Loans from a retirement plan may also qualify you to receive a 1099-R.

     

  • 1099-S.

    The 1099-S form is sent to you when you’ve closed the sale or exchange of real estate. It’s a way of keeping track of your proceeds.

     

  • 1099-SA.

    The 1099-SA form is dedicated to distributions from health savings accounts. HSA and Archer distributions usually aren’t taxable, so this may only be for record keeping.

     

Note that you may receive more than one 1099 form, and more than one type of 1099 form. 

Who Might Send You a 1099 Form? 

You can expect to receive a 1099 form from one or more of several potential entities, including: 

  • Banks and lenders.

    If you have a bank account, brokerage account, or other financial holding that earns interest or dividends, you may receive a 1099 form for what you’ve earned.

     

  • Clients.

    If you’re self-employed, you’ll probably receive 1099 forms from the clients and customers who paid you.

     

  • Individuals.

    You may also receive 1099 forms from individuals who paid you above a certain threshold.

     

IRS Reporting 

Individuals, businesses, and organizations will send you a 1099 form if you meet certain conditions. To do this, they will need your social security number and a few other pieces of information about you. They may have collected this when you began your relationship. 

If you receive a 1099 form, it means the issuing agency has reported that income to the IRS. The IRS therefore “knows” you’ve received the money. 

Do You Owe Taxes on Income Reported on a 1099 Form? 

You may think that receiving a 1099 form is an indication that you owe money on the income mentioned in the paperwork, but this isn’t necessarily the case. In many cases, you will owe taxes on the money, but this isn’t universally true. 

For example, sometimes, you’ll receive a 1099 form for income that is not subject to taxes. More commonly, you may receive a 1099 form for income that is eventually canceled out by your tax deductions. If you’re a freelancer or an independent contractor receiving 1099-MISC forms from your clients, you’ll almost certainly owe taxes on the income you made. 

What Do I Do With a 1099 Form? 

You’ll use your 1099 forms when filing your tax return. You’ll need to include the information for the income you receive, and possibly calculate the taxes you owe on that income. In some cases, you may not owe anything on the income you receive, and you may not need to report it. If you’re not sure, make sure you work with a professional tax preparer so you can clear up any confusion proactively. 

If you’ve received one or more 1099 forms, you’ll need to include them when you file your taxes. At Taxfyle, we’ll make it easy for you. Get started by filing your taxes with Taxfyle today!

Steven de la Fe

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