There are many alternative 1099 types–20, to be exact, as of 2020. They all serve the identical basic function, which is to supply info to the Internal Revenue Service (IRS) about sure varieties of earnings from non-employment-related sources.
The payers of these varieties of earnings should ship one copy of Form 1099 to the IRS and one other copy to the recipient of these funds (in different phrases, the taxpayer). They must also ship a duplicate to the recipient’s state tax company and make a copy for their very own information.
- Form 1099 is available in many alternative types, however all serve the aim of offering info to the IRS about sure varieties of non-employment earnings.
- The IRS compares taxpayers’ reported earnings on Form 1040 towards the knowledge reported on 1099 types and different tax types.
- For essentially the most half, particular person taxpayers don’t full 1099 types.
- Financial establishments and small companies that rent unbiased contractors fill out 1099s and ship them to payees by early February as a result of the payer is required to file them by January 31.
What Is Form 1099 Used For?
Form 1099, like many different tax types, is supposed to encourage individuals to report all of their earnings so the IRS can accumulate the complete quantity of taxes it’s owed, or, because the IRS places it, “to increase voluntary compliance and improve collections.” That’s why Form 1099 is technically referred to as an “information return.”
IRS computer systems evaluate taxpayers’ reported earnings on Form 1040 towards the knowledge reported on 1099 types and different types, such because the W-2, that employers use to report the wages and salaries they pay.
Who Can File Form 1099?
As a person taxpayer, you aren’t answerable for finishing a 1099 type, besides in a couple of circumstances (mostly, if you happen to personal a small enterprise and also you employed an unbiased contractor throughout the 12 months). Typically, monetary establishments draw up the suitable 1099s and also you’ll obtain copies electronically or by mail by early February as a result of the payer is required to file them by January 31.
You don’t often should submit the 1099 types you obtain to the IRS with your personal tax return, however it is best to hold them together with your different tax information in case of an audit.
Most Common 1099 Forms
Here are 4 of the most typical 1099 types:
Form 1099-DIV: Dividends and Distributions
If you personal a inventory or a mutual fund that pays dividends, it is best to obtain this manner.
Form 1099-INT: Interest Income
You ought to obtain a 1099-INT type when you have a checking, financial savings or different checking account that earns curiosity.
Form 1099-MISC: Miscellaneous Income
You ought to obtain this manner if you happen to labored for somebody as an unbiased contractor. If you’re self-employed and have a number of purchasers, it is best to obtain a 1099-MISC from every consumer who paid you $600 or extra.
The full title of this one is Form 1099-R: Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, and many others. If you obtained $10 or extra out of your IRA or one of the opposite sources of retirement earnings listed, it is best to obtain a 1099-R.
10 Things You Should Know About 1099s
Special Considerations for 1099 Forms
Taxes should not withheld from the kinds of earnings reported on 1099 types until the IRS has decided that you’re topic to backup withholding, which may be the case if you happen to underreported earnings up to now.
All the identical, if you happen to anticipate a big quantity of 1099 earnings for the 12 months, it is best to make estimated tax funds throughout the 12 months to keep away from IRS penalties and curiosity.
If you earn earnings that ought to have been reported on Form 1099—however you didn’t obtain a 1099 type—you might be nonetheless answerable for reporting that earnings on Form 1040 and paying tax on it. It is necessary to maintain your personal information of all of the earnings you obtain throughout the 12 months in case one of your earnings sources fails to file a 1099 or makes a mistake within the quantity it specified on the shape it did ship. (If that occurs, contact the supply and request that it difficulty a corrected type 1099.)
For instance, if you happen to earn $500 in facet earnings from tutoring by a tutoring company, the tutoring company may not difficulty a 1099-MISC as a result of it’s not required to take action for funds of lower than $600. However, you might be nonetheless required to report the $500 as earnings in your tax return.
To present one other instance, if you personal a small enterprise and also you employed an unbiased contractor to be your digital assistant and paid her or him $10,000 over the course of the 12 months, it is best to file a Form 1099-MISC with the IRS to report this fee and provides a duplicate to your assistant. He ought to report this earnings on his tax return. This is an instance of a state of affairs the place a person may must difficulty a 1099 type.
The Bottom Line
Because taxes should not withheld from 1099s, it is best to monitor earnings reported that manner particularly rigorously and pay estimated taxes if wanted. Alternatively, if you happen to even have a job and fill out a W-Four type, you possibly can have extra taxes withheld to cowl your exterior further earnings.