What is a 1099?
The Internal Revenue Service (IRS) uses a series of “information returns” called 1099s to track income received other than the salaries and wages paid by an employer.
Although most people think of a 1099 as being an independent contractor tax form, there’s a wide variety of forms and types of income that need to be reported.
Here’s a brief overview of the 1099 tax forms you may come across when preparing your taxes.
What is a 1099 form?
A 1099 tax form serves as the official record of the income that was paid or given to you outside of your regular salary. Whereas, a Form W-2 summarizes a worker’s earnings from a salary or wage position.
Independent contractors, freelancers, consultants, and other self-employed individuals primarily use 1099 forms. However, there are many other types of 1099 tax forms used to list payments you receive from various income sources, like interest from a bank or dividends from investments.
1099-MISC: Miscellaneous Income
If you’re an independent contractor or self-employed, you should receive a Form 1099-MISC for each of your client’s that pay over $600 during the tax year. However, you’re still responsible for reporting your income to the IRS if you don’t meet the income threshold.
The 1099-MISC Form also serves as a catch-all for income that doesn’t fall into other 1099 categories. It does have some defined purposes, like income from prizes and awards.
1099-INT: Interest Income
You’ll receive a 1099-INT if you earned more than $10 in interest from a financial institution. For example, your bank may send you this form if your earned interest income from a Certificate of Deposit (CD) or from a savings account. Interest income is taxed as ordinary income, meaning you’ll pay the same rate as you do for your regular income.
1099-DIV: Dividends and Distributions
Form 1099-DIV is used to report any dividends and distributions that are made from investments. Dividends may be taxed differently, so this form should differentiate payments that are qualified to be taxed at a lower rate.
Other 1099 tax form
Here are some additional 1099 tax forms you may receive.
1099-A: Acquisition or Abandonment of Secured Property. Form 1099-A is used for borrowers who do not make payments on a secured loan (ex: your lender foreclosed on your property).
1099-B: Proceeds from Broker and Barter Exchange Transactions. Form 1099-B covers income from the sale of certain types of securities (ex: stocks).
1099-C: Cancellation of Debt. If you were able to negotiate your outstanding balance with a creditor, the forgiven amount will be detailed on a 1099-C. The IRS considers canceled debt a form of income.
1099-CAP: Changes in Corporate Control and Capital Structure. You may receive this form if you are a shareholder who received cash, stock or other property from an acquisition of control or a substantial change in capital structure.
1099-G: Certain Government Payments. Form 1099-G includes funds received from the state, local or federal government (ex: unemployment compensation).
1099-LTC: Long Term Care and Accelerated Death Benefits. If you received payments from long-term care insurance or accelerated death benefits from a life insurance policy, you’ll likely receive Form 1099-LTC.
1099-NEC: Nonemployee Compensation. This is a new form beginning in tax year 2020. The intent is for companies to issue a Form 1099-NEC to freelancers and contractors instead of a Form 1099-MISC.
1099-OID: Original Issue Discount. If you purchased bonds, notes or other financial products at a discount, you may receive a Form 1099-OID.
1099-PATR: Taxable Distributions Received From Cooperatives. Form 1099-PATR is used to document co-op patronage dividends of at least $10.
1099-Q: Payments from Qualified Education Programs. The 1099-Q form is primarily used for record-keeping purposes for distributions from a qualified tuition program (ex: 529 college savings plan).
1099-R: Distributions from Pensions, Annuities, Retirement Plans, IRAs or Insurance Contracts. If you received distributions from a retirement plan, pension, individual retirement account (IRA), annuity or profit-sharing program, you may receive a Form 1099-R.
1099-S: Proceeds from Real Estate Transactions. Form 1099-S is used to report the proceeds from closing a sale or exchange of real estate.
1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Form 1099-SA documents distributions from your health savings account (HSA) or another medical savings account.
If you’re missing a 1099 tax form you were expecting to receive, you should contact the issuer to request a copy. This will ensure you’re correctly reporting income that the IRS will already have a record of.
How do I use my 1099 when filing my tax return?
In general, you should receive your 1099 forms by January 31 each year. You’ll use each 1099 you receive and your own financial records to determine how much income you earned during the tax year and what type of income the IRS considers it.
Keep in mind that just because you receive a 1099 form doesn’t necessarily mean you’ll owe taxes on that income. You may be able to claim tax deductions that offset it, or it may be considered exempt income depending on how it was generated (ex: tax-deferred IRA).
It’s important that you include all income you earned on your tax return, whether you received a 1099 or not. You want your reported numbers to match up what the IRS has on file to avoid triggering an audit.
If you need assistance understanding your 1099s or other financial documents this tax season, The Financial Gym has Certified Public Accountants (CPAs) on staff who can help prepare your taxes.