Do you know about Form 1099?

What is Form 1099?

The 1099 form is a series of documents the Internal Revenue Service (IRS) refers to as "information returns." An "information return" is not a tax return. Instead, it is a form that provides the IRS with information about a financial transaction.

There are a number of different 1099 forms that report various types of payments you may receive throughout the year other than what a business might pay you.

The form is used to report payments to independent contractors, rental property income, income from interest and dividends, sales proceeds, and other miscellaneous income.

Blank 1099 forms and the related instructions can be downloaded from the IRS website.

What is the 1099 Form used for?

A 1099 Form is used for documenting different types of payments from someone that typically isn’t your employer. This can be an individual, business, or entity. There are different 1099 Forms that report various types of income and how they were earned, such as through gambling, interest, dividends, nonemployee compensation, or retirement plan distributions.

Types of 1099 Forms

There are many types of 1099s, depending on the type of income earned during the tax year. The most popular types of 1099s are listed below:

1099-INT

A 1099-INT is sent to taxpayers if they earned from savings, or another bank account that earns interest more than $10 in the tax year.

1099-DIV

A 1099-DIV is typically sent to a taxpayer if dividend income was earned throughout the tax year. Dividends are usually in the form of cash payments paid to investors by corporations as a reward for owning their stock or equity shares.

1099-G

A 1099-G is sent to those who received money from the federal, state, and local governments, including a tax refund, credit or offset — you might get one of these. If you were on unemployment during the year, you might also have a 1099-G headed your way.

1099-R

A 1099-R is issued if a taxpayer received a distribution or payout from a pension, retirement plan, or individual retirement account (IRA). Also, certain annuities and life insurance contracts may issue a 1099-R.

1099-B

A 1099-B is sent to a taxpayer listing the various transactions from a broker, such as the sale of stocks, commodities, and other securities. Also, some types of bartering transactions executed through a barter exchange would be listed and reported on a 1099–B form.

1099-S

A 1099-S is issued to taxpayers for real estate transactions if they had closed a sale or an exchange during the tax year. Some examples of real estate transactions could be realizing gains or proceeds from the sale of land, commercial and industrial buildings, and residential properties, such as a home or condominium.

1099-MISC

A 1099-MISC is typically issued for income that falls outside the other 1099 forms. You may receive a 1099-MISC if you made at least $10 in royalties or broker payments instead of dividends or tax-exempt interest. You may also receive one if you got at least $600 in rent, prizes and awards.

What to do if you don’t get Form 1099?

If you haven't received a 1099, contact the employer or payer to request the missing documents. If the 1099 does not arrive in time, taxpayers must file their tax return by the tax filing day for that year.

If the company submits a 1099 form to the IRS, but you don't receive it for some reason, the IRS will send you a letter⁠ (actually, a bill) saying you owe taxes on the income. Please note that the letter may not arrive promptly, so it's important to remember that you are responsible for paying the taxes you owe even if you don't get the form.

If a taxpayer hasn't received the expected 1099 for income earned—even if the business didn't file the 1099 form—the taxpayer might be able to report it under miscellaneous income. As a result, all taxpayers need to keep track of any income earned throughout the tax year so that their income is appropriately reported and not misreported. However, it's best to contact a tax professional to determine the correct way to file for your particular tax situation.

Most states have an income tax, and they receive the same information the IRS does. So, if you missed a 1099 form on your federal return, be aware that your state will probably catch up with it.

Benefits of 1099 Form

While working as a freelancer, you can take advantage of tax deductions to reduce the amount of taxes you owe. You can also use different tactics to lower your tax liability, also permitted by the IRS. For example, if you contribute more to a retirement savings plan, you can reduce how much self-employment tax (Social Security and Medicare) you owe. In addition, independent contractors may qualify for certain tax deductions that can lower their tax bill. Deductible expenses include home office expenses, business travel expenses and office supplies. Also, 1099 contractors are allowed additional tax deductions called a 20% pass-through deduction, enabling you to deduct 20% of qualified business income.