What Is a 1099 Form and How Do You Report the Income?

Here’s what to know if you received this form

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Today’s gig economy has created many ways for people to earn income from side jobs, freelance projects, and entrepreneurial ventures. When the money from this kind of employment is paid out, it’s usually not taxed, and must be reported after the end of the year to the Internal Revenue Service (IRS). The tax form that is sent each year by employers or clients who have paid for this kind of work is called a 1099.

The IRS has many tax return forms and schedules, and it breaks them down into “information” forms and returns. The 1099 form is an information form. 

The tax code provides numerous 1099s, all of them differentiated by numbers or letters tacked on at the end or beginning of the form number. They indicate that money has changed hands from Party A to Taxpayer B, but not as income resulting from an employer/employee relationship, such as with a W-2. The paying party is responsible for submitting one to the IRS as well as a copy to the taxpayer after year’s end. 

Why Did You Receive a 1099 Form?

Many 1099s are subject to their own unique rules, but one rule applies to all types: They represent income to the taxpayer, and the taxpayer must report it when filing their tax return for that year. The IRS will almost certainly tap you on the shoulder if you don’t, because it’s received a copy of the 1099 form, too. It’s a weapon in the tax agency’s arsenal against taxpayers underreporting income.

Common Types of Form 1099

Some 1099s are far more common than others, too.

1099-MISC

The 1099-MISC is probably the most well-known of these forms, and it covers a multitude of income sources. Most often, it reports money received for services provided by independent contractors, freelancers, and sole proprietors. Think of this one as the equivalent of the W-2 you would receive from an employer if you worked for wages or a salary.

The magic number here is $600. A payor must issue a 1099-MISC when paying $600 or more per year for services to anyone who is not an employee. 

But it doesn’t stop at money earned from providing work efforts. A 1099-MISC form must be issued for health care services provided and for legal services delivered by attorneys. It also covers rents paid and prizes won, and it reports a number of agricultural and fishing transactions as well.  

The threshold for issuing a 1099-MISC drops to $10 for payments made by brokers that would normally be considered tax-exempt interest or dividends, and it increases up to $5,000 for merchandise sold for the purpose of resale to any business that doesn’t maintain a permanent, brick-and-mortar retail business.

The Form 1099-MISC is riddled with lines and boxes to differentiate the purposes for all these kinds of payments. 

Individual taxpayers do not have to issue and submit 1099-MISC forms when they make any of these types of payments exceeding the thresholds, such as if they pay an attorney. The requirement is only for businesses and self-employed individuals. 

1099-INT

The 1099-INT reports interest income you received during the tax year, and this is another relatively common 1099. It does not report dividends—they have their own 1099. 

You’ll typically receive a 1099-INT from your bank or credit union if you hold accounts that produced interest income of $10 or more. The threshold goes up to $600 if the interest is related to a business debt.

You’ll also receive a Form 1099-INT if any foreign taxes were withheld and paid for from your interest income, or if your earned interest was subject to backup withholding for some reason. 

1099-DIV

This is the information return for dividends and other similar distributions paid to you. You’ll typically receive a Form 1099-DIV if you own stock or mutual fund portfolios. This reporting threshold is $10 as well, unless you’re being paid because the corporation is liquidating. In that case, it increases to $600.

You will not receive a Form 1099-DIV if you sell stocks. This form only reports dividends and other distributions representative of a corporation’s earnings.

1099-R

Form 1099-R pertains to retirement benefits paid to you in excess of $10.

You might have been making contributions to one or more retirement funds throughout your working life. You didn’t pay income tax on the contributions you made to traditional plans, although contributions to Roth plans are made with after-tax dollars. So you’ll receive a 1099-R when and if you take distributions from any of those traditional retirement savings plans. You must report the distributions as income in the year you take them. 

Form 1099-R also reports profit-sharing and pension plan distributions, payments resulting from insurance contracts, survivor benefits, and those received from annuities. If any federal tax was withheld from any of these payments, it is reported on the 1099, as well.

Less Popular 1099s

The common forms of 1099s described above are just the tip of the iceberg. You’ll also receive a 1099 under numerous other circumstances.

  • Form 1099-A: Reports the “acquisition or abandonment of secured property.” This basically means that you walked away from property, relinquishing it to the lender in lieu of paying a debt. You’ll receive this form even if you gave some, but not all, ownership interest in the property. There’s no reporting threshold for this one.
  • Form 1099-B: Reports income received from broker or barter exchanges in any amount. This is the form you’ll receive if you sell stock—you’ll get it from your broker.
  • Form 1099-C: Reports cancellation of debt. You’ll receive this information return if a lender forgives debt that you owe, such as if you settled a $10,000 credit card balance with the lender for $5,000 and the lender wrote off that other half. The IRS takes the position that forgiven debt is income. The reporting threshold is $600 for this 1099 as well.
  • Form 1099-G: The “G” stands for “government.” You’ll get this one if you received unemployment compensation or a tax refund of $10 or more from your state. This 1099 does not include Social Security benefits—income from that source has its own 1099. You would not report state tax refunds here, however, unless you claimed an itemized tax deduction for payment of state taxes in a previous year.
  • Form 1099-H: You’ll receive this form if health insurance advance payments were made on behalf of you or your qualifying family members.
  • Form 1099-K: This is issued if you made 200 or more transactions and you received payments of $20,000 or more for goods or services via third-party services such as credit card processors or merchant card services. A very active Airbnb listing for which hosts have more than 200 guest bookings per year would be an example of an instance from side income that would lead to issuance of a 1099-K. Ride-sharing drivers will also receive a Form 1099-K for gross ride receipts accrued during the tax year, in addition to a Form 1099-MISC. If you ran a crowdfunding campaign and received more than $20,000 from more than 200 transactions, you may also receive a 1099-K.
  • Form 1099-LTC: Reports long-term care benefits.
  • Form 1099-Q: Reports payments you might have received from a qualified education program. Think contributions to Coverdell Education Savings Accounts or 529 plans on your behalf. You’ll receive this 1099 if you’re the plan’s designated beneficiary.
  • Form 1099-S: Reports proceeds from selling real estate, if they exceed $600 in total.
  • Form 1099-SA: Covers medical and health savings account distributions.
  • Form RRB-1099: Reports railroad retirement benefits.
  • Form SSA-1099: Reports Social Security benefits. 

How to File a Tax Return, Including a 1099

With so many 1099s out there, it shouldn’t come as any surprise that there’s no one-size-fits-all answer for how to include this information in your tax return. It depends on the specific type of 1099 you receive. Consider touching base with a tax professional if you receive one, to ensure you report the income correctly. 

Many tax software programs are set up to accommodate most of these 1099 forms as well.

As for independent contractors, freelancers, and sole proprietors, you should receive your 1099-MISC forms by January 31 of the year following the year. For example, you’d receive it by the last day of January 2020 for the 2019 income tax year. You would then include this information when completing Schedule C to calculate your net business income, and enter the result appearing on Line 31 on Schedule 1, and ultimately on your Form 1040. Schedule 1 reports “Additional Income and Adjustments to Income” and it’s the catchall form for many Forms 1099.

Independent contractors, freelancers, and sole proprietors must report all business income, even if they don’t receive a 1099-MISC form because a particular client didn’t pay them $600 or more.

Check with a tax professional if you received a Form 1099 that does not appear to be included or accommodated anywhere on Schedule 1. In most cases, you don’t have to submit the 1099 with your tax return—the IRS already has a copy. 

What to Do If You Don’t Receive a 1099

It’s entirely possible to misplace a Form 1099 before you sit down to prepare your taxes. In some cases, the business that paid you might have failed to send you the form. 

Reach out to the business first to see if you can get a replacement Form 1099. The same applies if you receive a 1099 but you think the information is wrong. Ask for an amended form. You can contact the IRS at 1-800-829-1040 if you can’t get the situation straightened out with the payer, or visit an IRS Taxpayer Assistance Center. 

You can submit IRS Form 4852, instead if you’re missing a Form 1099-R.

Knowing which Form 1099 applies to income you’ve earned and your financial situation, and reporting each correctly to the IRS, can make your life that much easier.

 

 

Article Sources

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