What Is a 1099 Form, and How Do I Use It?
Every year when tax season rolls around, you’ll find an influx of important-looking tax forms arriving in the mail. Among these forms might be form 1099, a document that details any income you received outside of salary paid by an employer.
While these forms are important for taxes, they can be a little confusing. In this guide, we’ll discuss what 1099 forms are, how they work, what you should do if you receive 1099 forms, and what you need to know if you’re required to send them.
What is a 1099 Form?
A 1099 Form is an IRS tax form known as an information form. That means it reports certain information on income you received that is needed for your taxes. There are a number of different 1099 forms used to report different sources of income. This can be anything from unemployment benefits to interest income.
If you’re an independent contractor or a freelancer, you will likely receive Form 1099-NEC from anyone you’ve done work for.
Types of 1099 forms
There are a number of different types of 1099 forms, each created to report a different type of income that you’ve received. Some common types of 1099 forms include:
If you’re a freelancer or independent contractor, you’ll probably start hearing a lot about Form 1099-NEC (Nonemployee Compensation). This form details how much you received for services you performed for someone who isn’t your employer.
If you received interest income of at least $10 during the year, you’ll be issued a 1099-INT to report that income. For example, if your bank pays you $10 in interest, they’ll send you a 1099-INT at the end of the year so you can report that income on your tax return.
The 1099-DIV is used to report dividend income, from a stock or mutual fund. Similar to the 1099-INT, you’ll receive this for dividend distributions of $10 or more.
If you received any government payments, like unemployment benefits, you’ll receive Form 1099-G. That form will include any money that you received as well as any
Previously, any income that you received from freelancing was included on a 1099-MISC. Starting in 2020, that income is recorded on your 1099-NEC. But the 1099-MISC still includes a lot of other important income information. If you received miscellaneous income, like rent award winnings, or legal settlements, that will be included on a 1099-MISC.
If anyone pays you via credit card or a third party payment processor (like Paypal), you might receive a 1099-K. But there’s a pretty high limit for this form to be issued. You’ll only receive it if you were paid more than $20,000 or you received more than 200 payments.
The 1099-R form is for distributions you received from retirement plans, pensions, IRAs, annuities, and profit-sharing programs (as well as a few other related things). Loans from a retirement plan may also qualify you to receive a 1099-R.
What’s on a 1099 Form?
While there are a number of different 1099 forms, they all contain the same basic information for you to use while filing your tax return.
On each 1099 form you’ll find:
- Your personal information including your name, address, and taxpayer identification number
- The payers information including their name, address, and taxpayer identification number
- The amount of income you were paid during the year
- Any federal or state tax that was withheld from that income
A copy of the 1099 form is mailed to you and another copy is mailed to the IRS to let the IRS know that you were paid that income.
What Do You Do With a 1099 Form?
A 1099 form reports income that you’ve received, and that income then needs to be included on your tax return. For example, if you performed web design work for a client and they paid you $2,500, they’ll also send you Form 1099-NEC reporting that amount.
You’ll then need to make sure that you’ve included that income on your tax return for the year, as you’ll need to pay income tax on it.
Will I Receive a 1099 Form?
If you receive income from a client, a bank, the government, or anywhere else, you will likely receive a 1099 to report that income. In specific instances, you may not meet the minimum payment amount to receive a 1099. For example, if a client pays you less than $600 for the year, you won’t receive a 1099-NEC reporting that income.
Even if they don’t send you a 1099, it’s still your responsibility to make sure that income is included on your tax return.
What Should I Do When I Receive a 1099?
A 1099 is an important document used to help you file your income tax return. When you receive it, the first thing to do is to check it for accuracy. Have they included your correct personal information like name and taxpayer identification number? Is the amount of income they’re reporting correct? If anything is incorrect, you’ll need to contact them as soon as possible to have a correction made.
If everything is correct, keep a copy of this 1099 somewhere safe. You’ll use it to file your income tax return. Depending on the type of 1099 you received, the income will be reported in different places on your tax return. For example, income on a 1099-NEC will be reported on your Schedule C, Profit or Loss from business. Income on a 1099-INT will be reported on the first page of your individual tax return, Form 1040.
Once your return is filed, it’s a good idea to hold onto your records, including your 1099 forms, for a few years.
What if I don’t receive a 1099?
But what if you don’t receive a 1099 when you should have? You’re still responsible for reporting any and all income that you receive, even if the payer fails to send you a 1099.
If you haven’t received your 1099 by the due date, contact the payer and ask them to re-send you a copy of your 1099. If you still aren’t able to track down a copy of your 1099 after asking for it, that’s not a free pass to then not include that income on your tax return. You have other ways of figuring out how much you were paid, by using your bookkeeping system or bank statements to track down payments. It’s more work on you, but including that income on your tax return is required, whether or not you received a 1099.
Do I Need to Send a 1099 Form?
If you run a business, there is one form that you may need to send to anyone who has done work for you: a 1099-NEC.
You’re required to send a 1099-NEC if:
- You paid an independent contractor $600 or more during a tax year. If you paid an independent contractor less than $600, you’re in the clear — you don’t need to file a 1099-NEC to report the payment.
- The independent contractor is not registered as an S Corporation or C Corporation. The exception to this rule is if they performed legal services for you. In that case, you’ll need to report the payments on a 1099-NEC. If you’re not sure whether the independent contractor is registered as a corporation, check the W-9 they filled out for you. That will include their business structure as well as their tax ID number.
- You did not pay them with a credit card or third party processor (like Paypal). If you paid them with a credit card or third party processor, they might receive a 1099-K from a payment processing company. But you’re not required to send them a 1099-NEC.
How Do You File Form 1099-NEC
If your business did hire a contractor to perform work and paid them $600 or more (not using a payment processor), you will need to send them a 1099-NEC.
Step 1: Request form W-9
For each independent contractor, request a W-9. This will include the important information you need in order to file a 1099-NEC, like their name, address, taxpayer identification number, and entity type. If you work with Taxfyle, they can send any 1099-NECs that are required once you provide them with the W-9’s for each independent contractor.
Step 2: Submit Copy A to the IRS
There are two ways to file with the IRS. The first way is to obtain a paper copy of the 1099-NEC and file. You’ll need to order a copy of the form from the IRS and they will mail it to you along with instructions.
If you prefer to file a copy online, you’ll do so through the IRS’s FIRE system (Filing Information Returns Electronically).
Step 3: Submit Copy B to the independent contractor
You’ll then mail Copy B to the independent contractor. You can provide them a copy of the form electronically, but first, you’ll need to obtain their consent to receiving the form that way.
1099-NEC Due Date
You’ll need to submit both copies of the 1099-NEC by January 31. Be careful with this deadline — if you miss it you could be subject to penalties.
If you’re not sure about the steps required or you don’t know if you can get the forms filed by the deadline, Taxfyle can help.
Getting Help with Your 1099
There are a lot of tax forms and due dates to keep track of, whether you’re receiving or sending 1099’s (or both). Taxfyle is here to make it easier for you. A Taxfyle CPA can help you file any 1099’s that you need to send and help you complete a tax return that includes any 1099 income that you received.