What Is Form 1099?
While there are many types of 1099 forms, they all serve the same purpose; they are used by taxpayers to provide information to the Internal Revenue Service (IRS) about all of the different types of income they receive throughout the year outside of their regular salary. This type of income is also referred to as income from non-employment-related sources. Taxpayers need to report all of their outside income to the IRS in order to avoid an audit. This income may include interest from your bank, dividends from investments, or compensation for freelance work.
Issuers of 1099 forms must send one copy to the IRS and another copy to the taxpayer, or the recipient of these payments. Some issuers send out 1099s by mail, while others provide them electronically.
- All 1099 forms serve the same purpose; they are used by taxpayers to provide information to the Internal Revenue Service (IRS) about all of the different types of income they receive throughout the year outside of their regular salary.
- The IRS compares taxpayers' reported income on Form 1040 against the information reported on 1099 forms and other tax forms.
- For the most part, individual taxpayers don’t complete 1099 forms.
- Payers–financial institutions and small businesses that hire independent contractors– are required to fill out 1099 forms and send them to their payees by early February.
What Is the Purpose of Form 1099?
Form 1099 is intended to help U.S. taxpayers report all of their income so that the IRS can collect the appropriate amount of taxes. The IRS considers Form 1099 an "information return."
The IRS compares its own data with the information reported on 1099 forms, the income that taxpayers report on their Form 1040–the tax form used for personal federal income tax returns–and with information reported on other forms, such as the W-2 forms–the forms that employers are required to submit to the IRS in order to report all the salaries they pay to employees.
Who Must File Form 1099?
Individual taxpayers are usually not responsible for actually completing any 1099 forms, except in a few circumstances. For example, if you own a small business and you hired an independent contractor, you may be required to fill out a form 1099. Typically, financial institutions and employers (when applicable) create all their required 1099 forms. Taxpayers typically receive copies of all 1099 forms that are applicable to them either electronically or by mail by early February. Payers of 1099 forms–financial institutions, employers, etc.– are required to file their 1099 forms by Jan. 31st.
You do not usually have to submit the 1099 forms you receive to the IRS with your own tax return, but you should keep them with your other tax records in case of an audit.
Most Common 1099 Forms
Here are four of the most common 1099 forms:
Form 1099-DIV: Dividends and Distributions
If you own a stock or a mutual fund that pays dividends, you should receive this form.
All copies of Form 1099-DIV are available on the IRS website.
Form 1099-INT: Interest Income
You should receive a 1099-INT form if you have a checking, savings, or another bank account that earns interest.
All copies of Form 1099-INT are available on the IRS website.
Form 1099-MISC: Miscellaneous Income
You should receive this form if you worked for someone as an independent contractor. If you're self-employed and have several clients, you should receive a 1099-MISC from each client who paid you $600 or more.
All copies of Form 1099-MISC are available on the IRS website.
The full name of this form is Form 1099-R: Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. If you received $10 or more from your IRA or another source of retirement income, you should receive a 1099-R.
All copies of Form 1099-R are available on the IRS website.
10 Things You Should Know About 1099s
Special Considerations for 1099 Forms
Taxes are not typically withheld from the income sources reported on 1099 forms. An exception to this is if the IRS has determined that you are subject to backup withholding, which may occur if you underreported income in the past.
If you anticipate a large amount of income from 1099 sources–such as savings accounts, retirement accounts, or payments for freelance work–for the year, you should make estimated tax payments during the year to avoid IRS penalties.
If you earn income that should have been reported on Form 1099—but you did not receive a 1099 form—you are still responsible for reporting that income on Form 1040 and paying tax on it. It is important to keep your own records of all the income you receive during the year in case one of your income sources fails to file a 1099 or makes a reporting error on the form it did send. (If the situation of a reporting error, the taxpayer should contact the source and request that it issue a corrected form 1099.)
For example, if you earn $500 in income from tutoring through a tutoring agency that you are working for as an independent contractor, the tutoring agency might not issue a 1099-MISC because it is not required to do so for payments of less than $600. However, you are still required to report the $500 as income on your tax return.
In addition, if you hired an independent contractor to be your virtual assistant for a small business that you operate and paid them $10,000 over the course of the year, you should file a Form 1099-MISC with the IRS to report this payment. You should also give a copy to your assistant so they can report this income on their tax return.
The Bottom Line
Because taxes are not already withheld from the sources of income included in 1099 forms, it's important to track any income reported that way and pay estimated taxes if needed. Alternatively, if you also have a job and fill out a W-4 form, you can have additional taxes withheld to cover your outside extra income.