A 1099 form is proof that you were given or paid money by an organization or person other than your employer. Examine how 1099s operate.
A 1099 form (or more than one) may arrive in your inbox in February. You should save it since it may have a significant influence on your tax situation.
What is an IRS 1099 form?
A 1099 form is proof that you were given or paid money by someone or something other than your job. The payer completes the 1099 form and delivers it to you as well as the IRS. There are several types of 1099 forms.
What is the purpose of a 1099 form?
You utilize your IRS Form 1099s to determine how much and what kind of income you got throughout the year. Depending on the kind of income, you’ll declare it in various areas on your tax return.
If you need assistance calculating how income reported on Form 1099 may influence your tax bill, check out this useful tax calculator.
Who needs to get a 1099 form?
A 1099 form is a statement of income. A 1099 form may be obtained by anybody for a variety of reasons.
- Freelancers and independent contractors, for example, often get 1099-MISC or 1099-NEC forms from their customers. The form displays the amount of money paid by the customer to the freelancer or independent contractor. (Look into possible tax breaks that might help offset part of that income.)
- Because a Form 1099 contains your Social Security number or taxpayer identification number, the IRS will know you’ve received money — and it will know if you don’t declare that income on your tax return.
Do I need a 1099 form to file my taxes?
Receiving a 1099 tax form does not always suggest that you owe taxes on the money. For example, you may have deductions that balance the income, or part or all of it could be sheltered depending on the features of the asset that created it. In any event, keep in mind that the IRS is aware of the situation.
What does a 1099 employee mean?
The term “1099 employee” often refers to a person who is an independent contractor, also known as self-employed or a freelancer, in the eyes of the IRS.
As a result, a 1099 is not the same as a W-2, which discloses income received to workers. If you get a 1099 from your workplace, it indicates that you are treated as an independent contractor rather than an employee. However, employers aren’t the only ones who may give you a 1099.
Types of 1099 forms
There are several types of 1099 tax forms (you can see all the details from the IRS here). They are referred to as “information returns” by the IRS. Here’s a quick breakdown of the Form 1099s that are most likely to come your way.
1099-A
If your mortgage lender canceled part or all of your mortgage, or if you were engaged in a short sale of your house, you could get one Form 1099-A. Why? In the view of the IRS, canceled debt is income — and it’s typically taxed.
1099-B
Form 1099-B reports revenue from the sale of certain forms of assets, as well as some types of bartering that take place via bartering exchanges, which are often websites. In such a situation, the exchange may “1099 you” for the earnings you got. If you trade with someone directly, a 1099 isn’t normally necessary, but you may have to declare the money.
1099-C
If you convinced a credit card company or other lenders to settle your debt for less than you owe, you’re not completely out of the woods. The amount forgiven by the lender is most certainly taxable income, as shown by the 1099-C.
1099-CAP
If you own stock in a company that was purchased or suffered a significant change in capital structure and received cash, stock, or other property as a consequence, you may get a 1099-CAP.
1099-DIV
The 1099-DIV is one of the most popular types of this form, and it shows dividends you received. Dividends on your credit union share account are not included. Because the IRS considers those interest payments, they appear on a separate 1099: the 1099-INT.
1099-G
You could obtain one of these if you got money from the state, municipal, or federal government, such as a tax refund, credit, or offset. If you were unemployed throughout the year, you may have received a 1099-G as well.
1099-INT
A 1099-INT will be sent if you earned more than $10 in interest from a bank, brokerage, or other financial institution. (Learn more about how to handle IRS Form 1099-INT.)
1099-LTC
If your long-term care insurance company handed out benefits throughout the year, the insurer will almost certainly submit a Form 1099-LTC. If you received payments from a life insurance policy’s accelerated death benefits, they are also reported on this form.
1099-MISC
This is a catch-all category for revenue that does not fall into any of the other 1099 categories, although it does serve certain special functions. Prizes and awards are two instances of income. (To learn more about what to do with IRS Form 1099-MISC, go here.)
1099-NEC
In 2020, the IRS rolled out the 1099-NEC, to report money they paid to people who did work for them but weren’t employees. In other words, if you freelanced, were self-employed or had a side gig, your clients should send you a Form 1099-NEC instead of a Form 1099-MISC in early 2021. (Learn more about what to do with IRS Form 1099-NEC.)
1099-OID
You might receive Form 1099-OID if you bought bonds, notes, or other financial instruments at a discount to the face value or redemption value at maturity. Typically, the instrument must have a maturity of more than one year.
1099-PATR
If you belong to a co-op and received at least $10 in patronage dividends, expect to see Form 1099-PATR in your mailbox.
1099-Q
You scrimped and saved to build a decent 529 account for your child’s college tuition … and this shows up. Yes, the 1099-Q reports money that you, Junior, or Junior’s school receive from a 529 plan. Keep in mind, however, the earnings in a 529 plan are generally not subject to tax when they’re used for qualified education expenses, so for many people, the 1099-Q is just record-keeping.
1099-R
If you got distributions from a pension, retirement plan, a profit-sharing program, IRA, or annuity, you might receive a 1099-R. (Remember, many retirement plans are tax-advantaged, so this form might be simple record-keeping on behalf of the IRS.) If you took a loan from your retirement plan, you might have to treat it as a distribution, which means it might be on this form, too, as well as permanent and total disability payments under life insurance contracts.
1099-S
Anybody responsible for closing a sale or exchange of real estate furnishes this statement to you, reporting the proceeds. Again, the proceeds from the sale of your house or other real estate aren’t necessarily taxable, so do your homework.
1099-SA
This is the form you’ll receive if you took any distributions from your health savings account, Archer medical savings account, or Medicare Advantage. Remember, HSA and Archer distributions generally aren’t taxable if you use them to pay for qualified health expenses. So again, for many people, a 1099-SA is simply proof that the money left the account and went to you.
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