As you probably know by now, tax season can be a hectic time. But even in the chaos, you mustn’t forget to gather all the necessary financial documentation before filing your taxes. For the most part, this involves collecting receipts for deductible expenses and watching the mail for important forms like W-2 or 1099.
But what is the 1099 form?
Hint – this form will help you report income beyond wages, salaries, and tips. However, there isn’t just one 1099 form. There are as many as 21 1099 types, each catering to a different type of income.
Since staying informed about the (many) requirements the Internal Revenue Service (IRS) imposes on taxpayers is crucial for successful tax filing, this guide will help you navigate the intricacies of the 1099 forms. Use it to determine which 1099 types correspond to your income sources, and make the filing process a bit more manageable.
Before diving into the details, let’s go back to basics – what is the 1099 form?
The 1099 form is a collection of tax documents used to report different types of income paid to you by an individual or an organization that isn’t your employer. The individual or organization in question fills out the appropriate 1099 form and sends one copy to you and one to the IRS. In some cases, a copy also goes out to your state taxing authority.
Typically, you should receive your 1099 form(s) by January 31 at the latest. This deadline might be familiar, as this is also the deadline for employers to provide employees with their W-2 forms.
Even if the amount of money on your 1099 is small, you must report it on your tax return. Why? Well, there are two reasons. One, the minimum amount that must be reported on a 1099 is $10 in some cases, meaning virtually no amount of money is considered “small.” And two, remember that the IRS will also receive a copy of your 1099 form, so the agency will expect to see the reported income on your tax return.
The answer to this question is simple – the 1099 is used to let the IRS know how much money you’ve earned from various sources beyond your wages and salaries. Of course, this information is only “interesting” because it dictates how much tax you must pay on the received income.
As previously mentioned, employees receive a W-2 form. As for the 1099 form, it’s mostly reserved for independent contractors, freelancers, and gig workers.
However, not every job will warrant a 1099 form. Here are some of the most common criteria for receiving this form:
Though there are 21 1099 types in total, not all of them are used frequently. Let’s start with the most commonly used 1099 forms, as you’ll likely encounter these at some point in your financial journey.
As suggested by the heading, Form 1099-MISC is used to report miscellaneous income. But what does “miscellaneous” mean in this context?
In this context, “miscellaneous” refers to the income that doesn’t fit in the category of common employee compensation, nor any of the specific types of incomes reported on other 1099 types. The types of income most commonly covered by this form include the following:
The threshold for the first item on the list is $10. All the other items require you to earn at least $600. This form can also be used to report that you’ve sold at least $5,000 of consumer products for resale outside a permanent retail establishment.
Prior to 2020, 1099-MISC was used to document nonemployee compensation. This changed with the (re)introduction of Form 1099-NEC.
As such, you’ll receive this form if you earned at least $600 working as an independent contractor or freelancer the previous year. You’ll also receive (and need to file) 1099-NEC if you’re on a contract with a company but not as a full-time employee.
Another important thing to note is that reporting independent contractor income will lead the IRS to classify you as a sole proprietor. Why is this important? Well, as a sole proprietor, you’re also responsible for paying self-employment taxes (Social Security and Medicare systems) on the earned income.
Have you received dividends and similar distributions from a bank or another financial institution? If so, you’ll also receive Form 1099-DIV form. But not all dividends are covered by this form.
For instance, the dividends accrued in tax-sheltered retirement accounts (e.g., 401(k) and Individual Retirement Account (IRA)) are generally not reported on a 1099-DIV. The same goes for dividends on your share account at the credit union. Why? It’s simple – these are reported on other 1099 types. For example, the dividends on your share account are reported on the next form this guide discusses – Form 1099-INT.
As mentioned, Form 1099-INT documents qualified dividends on your share account at the credit union. But this isn’t everything this form is used for.
Generally speaking, Form 1099-INT reports on interest income. Let’s say you own a high-yielding savings account. Earn at least $10 of interest on that account, and you (and the bank) are required to report it as income. Other notable categories covered by this form include the following:
Form 1099-K declares payments you received for goods and services via payment apps (e.g., Venmo and Cash App) or online marketplaces (e.g., Etsy and eBay), known as third-party settlement organizations (TPSOs). This form also documents the money received from payment cards, be it credit, debit, or even gift cards.
Note that Form 1099-K reports gross income. So, make sure to include the fees you paid to use the payment-processing platforms detailed above in your deductions.
Now, this form has experienced a recent change. Previously, Form 1099-K was only distributed to individuals with over 200 transactions amounting to more than $20,000 in income during the year. However, the IRS decided to slash this figure to the standard $600 threshold for tax year 2023 (taxes are due in 2024).
But even this change won’t be permanent, as the IRS announced its plans to raise the threshold to $5,000 for tax year 2024.
With Form 1099-B, you can report any income earned through the sale of securities. You should also use it to submit the barter exchange income taking place on bartering exchanges, as well as a brokerage. The types in question include exchanging the following for cash:
Also, there are several important things to note for this form:
Though the six 1099 types described above are undoubtedly the most common, you might also receive one or more of the following forms, depending on your financial activities.
Form 1099-A is issued to individuals who lost a property to foreclosure, whose mortgage got canceled (partially or completely), or who were involved in a short sale of their homes. In other words, this form documents the acquisition or abandonment of secured property.
Besides Form 1099-A, you might receive a 1099-C if the mortgage lender forgives your debt resulting from the difference in the foreclosure price and your mortgage’s remaining balance. Why? The answer is simple – even canceled debt is considered income.
As mentioned, Form 1099-C is filed by individuals whose debt was canceled. For this form to be distributed, the debt must be at least $600. The cancelation of debt is considered taxable in the year when it is forgiven. Note that this form applies to canceled debts resulting from property foreclosures or charge-offs on a credit card. It doesn’t, however, cover most debts resulting from bankruptcy.
Let’s say you held shares in a company that was acquired or underwent a major change in its capital structure. Let’s also say you received cash, stock, or property during this process. If that’s the case, you’ll likely receive Form 1099-CAP.
As you can probably conclude, this means that 1099-CAP reports changes in corporate control and capital structure.
Form 1099-G is prepared by the government at the local, state, and federal levels. This form is used to document the following government payments:
The “H” in Form 1099-H stands for health, or the Health Coverage Tax Credit Advance Payments, to be precise. Simply put, you must prepare this form if you receive any advance payments whose goal is to offset specific health insurance expenses. The programs covered by this form are as follows:
Note that the legislation requiring Form 1099-H (the Health Coverage Tax Credit) isn’t permanent. It was in effect from 2002 to 2021, helping vulnerable Americans maintain access to health coverage. However, there are legislative efforts to extend these advanced payments, so this form might be needed again. Of course, it’s still needed for individuals filing (or amending) returns from previous years.
Have you been paid benefits from your long-term care benefits? Or, have you received income resulting from accelerated death benefits within a life insurance policy? If the answer to any of these questions is “yes,” you’ll likely receive Form 1099-LTC. This form is sent from organizations like insurance companies and viatical settlement providers.
Form 1099-LS is another form that deals with a life insurance contract. But this time, it’s all about life insurance contract transactions.
If a company or an individual acquires a life insurance contract (or any interest in it), it must document the sale with the IRS. In other words, it must complete a 1099-LS. This form is needed even if a company acquires another company whose assets include life insurance holdings.
Form 1099-LS is relatively new, as it was created after the 2017 Tax Cuts and Jobs Act introduced a new section to the Internal Revenue Code regulating the so-called “reportable policy sales” of life insurance.
The “OID” in Form 1099-OID’s name stands for “original issue discount.” But what is this exactly?
Original issue discount refers to the difference between the face value of a debt instrument (e.g., a bond) and the price at which it was sold. If you’re the one doing the purchasing, you’ll receive Form 1099-OID. Why?
Well, you’ll redeem the purchased bond when it matures, earning an income. Naturally, the IRS considers this a taxable income, provided it’s at least $10.
Let’s say you’re a part of a cooperative (e.g., a housing co-op), and you receive distributions or profits from it amounting to at least $10. With these distributions, you’ll also get Form 1099-PATR, a form covering taxable distributions received from cooperatives.
Form 1099-Q reports qualified tuition program earnings received from a 529 plan or Coverdell Education Savings Account (CESA) to you or your child. The money received is for education expenses and is often non-taxable. Still, you’ll receive Form 1099-Q and should keep it for your records.
With Form 1099-QA, you document distributions from ABLE accounts. But what are ABLE accounts?
ABLE accounts, or Achieving a Better Life Experience accounts, are tax-advantaged savings accounts reserved for people who have significant disabilities that began before the age of 26. Using these accounts, these individuals can save and invest money, as well as pay for disability-related expenses.
Form 1099-R is reserved for people who get distributions (at least $10) from pensions, retirement plans, profit-sharing programs, IRA contributions, and similar plans. Of course, many of these distributions are non-taxable, so this form is often used only for record-keeping.
Use Form 1099-S to report proceeds from real estate transactions. This primarily refers to selling real estate that appreciated in value, as the difference between the selling price and the original purchase price is subject to capital gains tax.
Form 1099-SA is the form you’ll get if you receive Health Savings Account (HAS), Archer MSA, or Medicare Advantage MSA distributions. Note that you must file a separate return for each of these plans.
Form 1099-SB, the last 1099 form that deals with life insurance policies, is typically paired with a 1099-LS. This form is filed by the original issuer of the life insurance policy after receiving a 1099-LS or a notice of a transfer of the life insurance contract to a foreign person. This form (and reportable policy sales in general) comes with numerous relatively new rules and regulations, so be careful how you approach its filing.
Most 1099 types are required to be sent out by January 31. If you don’t receive your 1099 form(s) by February 28, you should take action.
Firstly, contact the issuer (e.g., employer or payer) to inquire about the missing form(s) and request that they be sent to you. Alternatively, check with the IRS to ensure the forms have been issued. To do so, you’ll need to provide the following information:
If all else fails, you can file taxes without a 1099 form. Just make sure to report your income accurately using your personal records (e.g., pay stubs and receipts).
Receiving an incorrect 1099 form is virtually the same as not receiving the form at all. In other words, you should follow the same steps as with a missing form:
Once (or if) you receive the corrected 1099 form, check whether your estimates match the corrected information. If not, you must file Form 1040-X, also known as the Amended U.S. Individual Income Tax Return form.
There are 21 1099 types listed by the IRS.
The minimum amount that must be reported on a 1099 is $10 to $600, depending on the exact form type.
Yes, you can file your taxes without a 1099 form. However, you must pay the right amount of tax and report your income properly, as if you’ve received a 1099.
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This article will help you understand how to prepare yourself for tax season, prepare and file your taxes according to IRS standards!
