A 1099 form is a document that businesses use to report various types of government payments to both the IRS and payees.
This includes payments for services, dividends, interest, rents, royalties, and other types of income. There are various 1099 forms, each with specific instructions for filling them out.
If you’re an entrepreneur or small business owner who wants to stay compliant with the IRS, it’s critical to understand what a 1099 form is and how it applies to your business. Read on for an overview of the different types of 1099 forms and how to navigate the filing process.
What is a 1099 form, and what is it used for?
A 1099 form is an information return that reports taxable income other than wages, salary, and tips.
For example, if you’re self-employed or earn rental income, you’ll likely receive a 1099 form.
The 1099 form reports what’s referred to as miscellaneous income, and there are many different types of 1099s.
Here’s a quick run-through of some of the other common 1099 forms and what they report:
- Form 1099-B: Proceeds from broker transactions
- Form 1099-C:Cancellation of debt
- Form 1099-DIV: Dividends and distributions from investments
- Form 1099-H: Health insurance premiums that the taxpayer pays
- Form 1099-INT:Interest income earned throughout the year
- Form 1099-K: Merchant card and third-party payment transactions
- Form 1099-NEC:Nonemployee compensation
- Form 1099-Q: Distributions from qualified education programs
- Form 1099-R: Distributions from pensions or annuities
- Form 1099-S: Proceeds from real estate transactions
- Form 1099-SA:Distributions from health savings accounts (HSA)
All that said, the most common type is the 1099-MISC, used to report income earned from rental property, providing services as an independent contractor, or earning royalties. If you receive a Form 1099-MISC, you’re considered self-employed (an important fact to remember).
While this may seem like a lot of extra work, being self-employed has some benefits, such as the possibility of deducting business expenses on your tax return.
Be sure to speak with a qualified tax professional if you have questions about filing your taxes after receiving a 1099 form.
Related: Time To Send Out 1099s: What To Know
Is a 1099 a tax return?
A 1099 form is not the same as an income tax return. It’s an informational form that reports specific types of income and other financial activities. Essentially, you use the information from the 1099 forms to complete your taxes.
The Internal Revenue Service (IRS) requires businesses to file 1099 forms for almost any payment over $600 made throughout the year. That includes payments for services, mortgage interest, royalties, and other miscellaneous income.
The payee doesn’t need to issue a 1099 form for any payments under $600; nonetheless, both the issuer and recipient must report this income on their tax returns.
1099 vs. W-2
A 1099 is an IRS form that shows an individual’s income from specific types of payments.
A Form W-2 is a tax form that reports the wages an individual has received.
The primary difference is that 1099 forms are issued to non-employees, whereas W-2 forms are issued to employees. Businesses are responsible for reporting employee wages on W-2 forms, while self-employed individuals (think freelancers and independent contractors) must report payments outlined on their 1099s.
Additionally, self-employed individuals may receive 1099s and W-2s, depending on the work they perform.
Generally, W-2 forms report wages from full-time employment or an employer/employee relationship, whereas 1099 forms report income from freelance work, contract labor, royalties, or rent payments.
Unlike 1099s, W-2 forms withhold federal income taxes (and state taxes) from employees’ wages. Therefore, individuals need to note whether their income was reported as a W-2 or 1099 to know what taxes they must pay.
Who needs to file a 1099 form?
A 1099 form reports income from freelance work, rentals, investments, and other alternative sources. In most instances, if you earned more than $600 from any of these sources during the year, the person who paid you must send you a 1099 form by January 31st. You will then use this form to complete your taxes.
When reporting your income on your taxes, use the correct 1099 form.
For example, if you received payment from freelancing, you should generally fill out a 1099-MISC.
Note that you’re responsible for paying taxes on all of your income, regardless of whether or not you receive a 1099 form.
Speak to a tax professional if you have any questions about whether or not you need to file a 1099 form. They can guide you through all the reporting requirements and help keep you above board.
When are 1099 forms due?
For businesses, 1099 forms are due by January 31st of the year following the calendar year when payments were made. This applies both to copies to be sent to contractors and the IRS.
For individuals, 1099 forms must be received by January 31st, following the calendar year during which payments were made. All relevant 1099 forms should be reported on individuals’ tax returns by April 15th of the same year.
If an individual does not receive a 1099 form from a business or other payer, they should still report the income on their tax return. Individuals should keep track of their income throughout the year in case 1099 forms are not provided.
Failure to meet these deadlines can result in expensive penalties. Businesses that fail to file 1099 forms on time face a minimum penalty of $50 per form, with a maximum of $290 per year. The specific penalty depends on the form type and the time passed after the deadline.
The IRS can also impose additional penalties for what it finds as intentional or negligent filing errors.
How do I file a 1099 form with the IRS?
If you’re an independent contractor or self-employed individual, you’ll need to file a 1099 form with the IRS come tax time.
Here are three things to know about 1099 forms and how to file them with the IRS:
1. A 1099 form reports income not subject to withholding tax.
This includes interest, dividends, royalties, and payments made in exchange for services (including rent, commissions, fees, and tips). The payer of this income should send a 1099 form to both the payee and the IRS.
2. There are many types of 1099 forms (more than 15), each for a different type of income.
The most common is the 1099-MISC, used to inform the IRS of miscellaneous income. You would file a 1099-MISC if you received income such as rental income or freelancing income during the year. Other common 1099 forms include the 1099-INT (for interest income) and the 1099-DIV (for dividend income).
3. When it comes time to file your taxes, you’ll need to include your 1099 forms with your return.
You’ll also need to send a copy of each form to the IRS, so be proactive about keeping the informational report handy.
Here are some tips for filing your 1099 forms correctly:
- Review each form you receive and make sure the information is accurate.
- Choose the correct filing method, whether direct entry, paper filing, or digital e-filing.
- Double-check your work to ensure all your forms are filled out completely and accurately.
- File your forms with the IRS and report them on your tax return by the deadline.
Correctly filing your 1099 form is essential for ensuring that you comply with the IRS and local tax agencies. It also helps to protect you from any potential penalties and audits.
Common mistakes people make when filing 1099 forms
Perhaps the most common mistake is failing to report all the income they receive. While this can be fraudulently intentional, unintentional misreporting can happen if you forget to include income from a side gig, lottery winning, or receive cash payments instead of a check or money order.
If you don’t know whether to report a specific type of income, it’s generally best to err on the side of caution and include it. Otherwise, you could face IRS penalties or miss out on potential tax credits.
Another common mistake made on the business end is incorrectly reporting the taxpayer identification number (TIN) of the person or business you paid. The TIN can be either a Social Security number (SSN) or an employer identification number (EIN).
If you report an incorrect TIN, the IRS might flag the return as inaccurate and send you a notice asking for clarification. As such, you always want to double-check the TIN before filing your return.
Lastly, some taxpayers fail to file their 1099 forms (and other information returns) by the established deadline. The deadline for paper filings is February 28th, and the deadline for electronic filings is March 31st.
If you miss the deadline, you may be subject to late fees and interest charges from the IRS. By avoiding these mistakes, you can ensure that your 1099 filing process goes smoothly (or at least increase the chances of a smooth process).
Are there penalties for not filing a 1099 form on time or incorrectly filing one?
The IRS imposes various penalties for businesses that fail to file 1099 forms on time or file them incorrectly. Perhaps the most significant penalty is the failure-to-file penalty, assessed at a rate of 0.5 percent of unpaid taxes per month; a business will be subject to this penalty if it fails to file a 1099 form within 30 days of the due date.
Moreover, if a business files a 1099 form more than 60 days after the due date, the penalty can increase to $435 per form.
In addition to the failure-to-file penalty, businesses may also be subject to a failure-to-pay penalty if they don’t pay the amounts shown on the 1099 forms by the due date. This penalty is equal to two percent of the unpaid tax liability and accrues monthly until the total amount gets paid.
Finally, businesses may be subject to interest charges on any unpaid taxes.
How can I get help if I’m having trouble filing my 1099 form correctly?
If you struggle to fill out or file your 1099 form correctly, there are a few places to turn for help.
The IRS website has a wealth of helpful resources to answer most tax filing questions.
You can call them if you can’t find what you’re looking for on the website. They have customer service representatives who can help answer your questions and get you on the right track.
Remember that IRS employees and those who work for other financial institutions are often overwhelmed with calls, especially during tax season, so you may need to plan for long wait times.
Another great resource is your tax preparer or accountant. They can guide you through each step of the process and ensure everything is filed correctly.
Your tax professional can also help you get the maximum amount on your tax refund. If you don’t have a tax preparer or accountant to rely on, make it a priority to find one as soon as possible.
Tax filing software
Finally, there are many software programs available that can help you file your taxes. These programs can walk you through the process in an easy-to-use interface.
If you’re overwhelmed by the different options on the market, read online reviews highlighting each product’s features and costs. Then, choose the best tax software for your needs and budget.
Getting help with your 1099 form can be easy, whichever route you choose. Research the plethora of resources available to help you get everything filed correctly and on time.
Ready to file a 1099 form?
1099 forms are important documents for both the IRS and taxpayers. Businesses and individuals should understand who needs to file them, when they are due, and how to get help filing them correctly.
Filing deadlines are strict, so it’s best to start gathering your information early and contact a tax professional if you have any questions.
Take a look at Entrepreneur’s Finance articles for more information like this.