Form 1099: Reporting Non-Employment Income

A variety of 1099 Forms are used to report income to the IRS

What Is Form 1099?

A Form 1099 is issued to taxpayers so they may provide information to the Internal Revenue Service (IRS) about different types of non-employment income received during the tax year. 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 to the taxpayer, the income recipient.

Key Takeaways

  • 1099 forms report a taxpayer's non-employment income received throughout the tax year to the Internal Revenue Service (IRS).
  • The IRS compares reported income on Form 1040 with the information reported on 1099 forms.
  • Individual taxpayers don’t complete 1099 forms.
  • Financial institutions and small businesses that hire independent contractors complete 1099 forms and send them to their payees by early February.

10 Things You Should Know About 1099s

Understanding Form 1099

Form 1099 helps U.S. taxpayers report their income so that the IRS can collect the appropriate taxes. The IRS considers Form 1099 an "information return" and includes non-employment income, such as independent contractor pay or IRA distributions.

The IRS compares data reported on 1099 forms with the income reported on an individual's Form 1040, the tax form used for personal federal income tax returns, and information included on other forms, such as the W-2.

Who Must File Form 1099?

Individual taxpayers do not commonly complete 1099 forms. A small business owner who hires an independent contractor will be required to fill out a form 1099. Financial institutions and employers create required 1099 forms by Jan 31st. Taxpayers receive copies of all 1099 forms either electronically or by mail by early February.

You do not usually have to submit the 1099 forms you receive to the IRS with your tax return, but you should keep them with your other tax records in case of an audit.

Types of Form 1099

Form 1099-DIV: Dividends and Distributions

If you own a stock or a mutual fund that pays dividends, you should receive this form.

2022 1099-DIV

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.

2022 1099-INT

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.

2022 1099-MISC

Form 1099-R

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.

2022 1099-R

Tax Considerations

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 income from 1099 sources, such as interest, retirement accounts, or payments for freelance work, you can make estimated tax payments during the year.

If you earn income that should have been reported on Form 1099 but did not receive a 1099 form, you are still responsible for reporting that income on Form 1040. Keep 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. If a reporting error occurs, the taxpayer should contact the source and request that it issue a corrected form.

What Is the Difference Between a W-2 and Form 1099?

Form 1099 is issued to an independent contractor who is not a permanent employee, and a W-2 is issued to an employee who receives a regular wage or salary for performing a role in a company.

Is a 1099 Used to Report Employee's Business Expense Reimbursements?

Employers must report payments made to employees under a nonaccountable plan as wages on Form W-2 such as Employee business expense reimbursements. 

Do Employers Benefit From Hiring Independent Contractors?

Employers who pay employees as independent contractors and report pay via Form 1099

do not withhold income taxes, Social Security, and Medicare taxes, and do not pay unemployment taxes on what a contractor earns.

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.

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  1. Internal Revenue Service. "About Form 1099-MISC, Miscellaneous Income."

  2. Internal Revenue Service. "General Instructions for Certain Information Returns (2022)."

  3. Internal Revenue Service. "Am I Required to File a Form 1099 or Other Information Return?"

  4. Internal Revenue Service. "Instructions for Form 1099-DIV (01/2022)."

  5. Internal Revenue Service. "Instructions for Forms 1099-INT and 1099-OID (01/2022)."

  6. Internal Revenue Service. "About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc."

  7. Internal Revenue Service. "Publication 505 (2019), Tax Withholding and Estimated Tax."