1040 vs. 1099: Tax Forms Explained
One is the master tax return, and the other is an information form
If you’re a novice when it comes to filing your income taxes, then figuring out which forms to use can be a challenge. This is especially true if this is the first year you received income that needs to be reported on a 1099 form. Reporting this type of income is a bit more complicated than reporting W-2 income.
Fortunately, comparing Form 1040 and Form 1099 is actually pretty straightforward. The first thing to understand is that Form 1040 is the master sheet that includes details from all other tax forms, including all types of 1099 forms. Let’s dive into the differences between Forms 1040 and 1099, and how you’ll use each one to file your taxes.
What Is Form 1040?
In a nutshell, Form 1040 is the main tax form that taxpayers use to report their income each year. You’ll include all income and deductions on this form to determine whether you owe taxes or will get a refund, as well as how much you’ll pay or get back. But to accurately report your income and deductions on Form 1040, you’ll need to make calculations using various other tax forms, including supporting forms called schedules.
Form 1040 itself is only two pages long. It comes with three schedules that break down your taxable income and deductions in much more detail. You’ll fill in lines 1 to 9 with different types of income you received, including all earned, investment, and miscellaneous income. Lines 10a and 10b list deductions for things like student loan interest and charitable contributions, which you’ll subtract from your income to get your adjusted gross income. Then you’ll subtract the standard or itemized deductions (line 12) and any qualified business income (line 13) from your adjusted gross income to find your taxable income.
On the second page, lines 16-24 compute the total amount of tax you owe on all of your income. Next, lines 25-33 subtract all of the tax credits you can claim, including tax already paid and credits like the Earned Income Tax Credit. If the number on line 24 is larger than the one on line 33, the difference is the amount you owe. If line 33 is larger, subtract line 24 and the result is the amount you’ll get as a refund.
What Is Form 1099?
There are several different types of Form 1099, and each type is used to report a certain type of income other than salary or wages. For example, Form 1099-NEC is used to report independent contractor income, which is income you earned as a freelancer or self-employed worker. It’s the equivalent of the W-2 you’d receive as an employee, and you’ll receive one from any client that paid you more than $600 during the year.
Other types of 1099s include:
- Form 1099-INT, which reports taxable interest income
- Form 1099-DIV, which reports dividend income
- Form 1099-B, which reports capital gains and losses
- Form 1099-MISC, which reports rental, royalty, and other miscellaneous types of income
Anyone who earned income from something other than a typical employee/employer relationship might receive a 1099, depending on the amount of that income.
Form 1040 vs. Form 1099: The Big Difference
The key difference between these forms is simply that most people who file a tax return, whether on paper or electronically, will use Form 1040 (some seniors may file a 1040-SR). Only people who have earned income other than a salary or wages will receive a Form 1099. For example, if you worked as an independent contractor, you’ll receive a 1099-NEC. If you earned interest income, you’ll receive a 1099-INT.
The income that is reported on all of your 1099 forms is aggregated and reported on your Form 1040. For example, let’s say you sell insurance. If you received commissions of $10,000 from each of five different insurance carriers, you would receive a 1099-NEC from each company showing how much you earned. You would then report $50,000 of self-employment income on your Form 1040.
Tax forms like 1099s are essentially supplemental; you’ll use them to make calculations to determine the key numbers to enter on your Form 1040. But the 1040 is essential: It’s the final tax form that shows the overall picture of your income and tax credits for the year.
What to Do With These Tax Forms
Once you receive your 1099s, store them in a secure place so you can easily find them when it’s time to do your taxes. If you file electronically, the tax software should automatically input your tax data into a 1040. If you’d prefer to file a paper return, you can print a Form 1040 off of the IRS website.