Form 1099: Reporting Non-Employment Income

What Is Type 1099?

A Type 1099 is issued to taxpayers so they might present data to the Inside Income Service (IRS) about several types of non-employment revenue acquired in the course of the tax 12 months. This revenue could embrace curiosity out of your financial institution, dividends from investments, or compensation for freelance work.

Issuers of 1099 kinds should ship one copy to the IRS and one other to the taxpayer, the revenue recipient.

Key Takeaways

  • 1099 kinds report a taxpayer’s non-employment revenue acquired all through the tax 12 months to the Inside Income Service (IRS).
  • The IRS compares reported revenue on Type 1040 with the knowledge reported on 1099 kinds.
  • Particular person taxpayers don’t full 1099 kinds.
  • Monetary establishments and small companies that rent unbiased contractors full 1099 kinds and ship them to their payees by early February.
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10 Issues You Ought to Know About 1099s

Understanding Type 1099

Type 1099 helps U.S. taxpayers report their revenue in order that the IRS can gather the suitable taxes. The IRS considers Type 1099 an “data return” and consists of non-employment revenue, comparable to unbiased contractor pay or IRA distributions.

The IRS compares information reported on 1099 kinds with the revenue reported on a person’s Type 1040, the tax type used for private federal revenue tax returns, and knowledge included on different kinds, such because the W-2.

Who Should File Type 1099?

Particular person taxpayers don’t generally full 1099 kinds. A small enterprise proprietor who hires an unbiased contractor will likely be required to fill out a type 1099. Monetary establishments and employers create required 1099 kinds by Jan thirty first. Taxpayers obtain copies of all 1099 kinds both electronically or by mail by early February.

You don’t often must submit the 1099 kinds you obtain to the IRS along with your tax return, however it’s best to hold them along with your different tax data in case of an audit.

Forms of Type 1099

Type 1099-DIV: Dividends and Distributions

For those who personal a inventory or a mutual fund that pays dividends, it’s best to obtain this type.

Type 1099-INT: Curiosity Earnings

You need to obtain a 1099-INT type when you have a checking, financial savings, or one other checking account that earns curiosity.

Type 1099-MISC: Miscellaneous Earnings

You need to obtain this type in case you labored for somebody as an unbiased contractor. For those who’re self-employed and have a number of shoppers, it’s best to obtain a 1099-MISC from every consumer who paid you $600 or extra.

Type 1099-R

The complete identify of this type is Type 1099-R: Distributions from Pensions, Annuities, Retirement or Revenue-Sharing Plans, IRAs, Insurance coverage Contracts, and many others. For those who acquired $10 or extra out of your IRA or one other supply of retirement revenue, it’s best to obtain a 1099-R.

Tax Issues

Taxes will not be sometimes withheld from the revenue sources reported on 1099 kinds. An exception to that is if the IRS has decided that you’re topic to backup withholding, which can happen in case you underreported revenue previously.

For those who anticipate a big revenue from 1099 sources, comparable to curiosity, retirement accounts, or funds for freelance work, you can also make estimated tax funds in the course of the 12 months.

For those who earn revenue that ought to have been reported on Type 1099 however didn’t obtain a 1099 type, you might be nonetheless liable for reporting that revenue on Type 1040. Maintain data of all of the revenue you obtain in the course of the 12 months in case one in all your revenue sources fails to file a 1099 or makes a reporting error on the shape. If a reporting error happens, the taxpayer ought to contact the supply and request that it difficulty a corrected type.

What Is the Distinction Between a W-2 and Type 1099?

Type 1099 is issued to an unbiased contractor who just isn’t a everlasting worker, and a W-2 is issued to an worker who receives an everyday wage or wage for performing a task in an organization.

Is a 1099 Used to Report Worker’s Enterprise Expense Reimbursements?

Employers should report funds made to workers underneath a nonaccountable plan as wages on Type W-2 comparable to Worker enterprise expense reimbursements. 

Do Employers Profit From Hiring Impartial Contractors?

Employers who pay workers as unbiased contractors and report pay by way of Type 1099

don’t withhold revenue taxes, Social Safety, and Medicare taxes, and don’t pay unemployment taxes on what a contractor earns.

The Backside Line

As a result of taxes will not be already withheld from the sources of revenue included in 1099 kinds, it is vital to trace any revenue reported that approach and pay estimated taxes if wanted. Alternatively, in case you even have a job and fill out a W-4 type, you’ll be able to have further taxes withheld to cowl your outdoors further revenue.