You might have gotten interest-bearing income from a bank account as non-employment income. or from a stock brokerage account that holds dividend-paying securities. Or perhaps you worked as a freelancer or independent contractor. Or perhaps you got unemployment compensation. To report non-employment income to the IRS for tax purposes, a specific version of the 1099 form must be used for each type of non-employment income.
For instance, independent contractors and freelancers should receive a 1099-NEC and include it in their tax returns if they make $600 or more in non-employment income.
Interest is reported on a 1099-INT and dividend income on a 1099-DIV.
Although businesses probably dislike sending them even less than taxpayers do, 1099s are necessary to maintain track of revenue that isn’t included in a person’s wages or salary seen in a W-2. The Internal Revenue Service (IRS) compares almost all of your employer’s W-2 and 1099 deadlines tax forms to your Form 1040 tax returns or other tax documents. The IRS might inform you that you owe additional money if they don’t match.
Here are 10 things you should be aware of regarding your 1099s, including a description of the different sorts and what to do if your 1099 is incorrect or you don’t receive it.
1. Who Should Receive a 1099 Form?
To report specific non-employment income to the IRS, such as stock dividends or compensation you received as an independent contractor, utilise Form 1099.
Any payee (other than a corporation) who receives at least $600 in non-employment income during the year requires businesses to send 1099s. The $600 threshold regulation does have some exceptions, though. For instance, if a client received $10 or more in interest revenue, a financial services company will normally issue a 1099.
2. The Many Varieties of 1099s
Depending on the kind of income received throughout the tax year, there are many 1099 varieties. There are 20 different types of 1099 forms as of 2022, and the following are some of the most well-liked ones.
1099-INT
If a taxpayer earned more than $10 in interest during the tax year, a 1099-INT is mailed to them. A 1099-INT is typically sent out by banks, brokerage houses, and other investment companies.
1099-DIV
Normally, if a taxpayer received dividend income during the tax year, a 1099-DIV is mailed to them. As compensation for holding a company’s stock or equity shares, firms typically pay dividends to investors in the form of cash payments.
1099-G
Those who have received funds from the federal, state, or local governments are handed a 1099-G. Taxpayers who received a municipal tax refund or unemployment benefits, for instance, would probably get a 1099-G.
1099-R
If a taxpayer received a payout or distribution from a pension, retirement plan, or individual retirement account, a 1099-R is generated. (IRA). Additionally, some life insurance policies and annuities may issue a 1099-R. However, not all retirement distributions are taxable, so if you’re unsure if you should pay taxes on a payout, you should speak with a tax expert.
1099-B
The different transactions from a broker, including the sale of stocks, commodities, and other securities, are listed in a 1099-B that is delivered to the taxpayer. Additionally, a 1099-B form would include and disclose some bartering transactions that were carried out through a barter exchange.
1099-S
If a taxpayer closed a real estate sale or exchange during the tax year, a 1099-S is given to them. Realizing gains or earnings from the sale of land, commercial and industrial structures, and residential properties, such as a house or condominium, are a few examples of real estate transactions.
It is advisable to speak with a tax expert because, depending on the taxpayer’s individual financial condition, the proceeds from a real estate sale may be tax-exempt.
1099-MISC
For income that does not qualify for one of the other 1099 forms, a 1099-MISC is frequently issued. For instance, certain non-employment income streams, such money obtained as prizes or honors, are disclosed on a 1099-MISC.
1099-NEC
The IRS has modified its non-employee compensation reporting rules. Businesses will need to declare specific non-employee compensation kinds on form 1099-NEC starting with the 2020 tax year. Form 1099-MISC was utilised previously.
If a company paid a non-employee $600 or more during the tax year, Form 1099-NEC must be submitted. Any worker employed on a contract basis to accomplish work, such as a graphic designer, writer, or web developer, falls under the category of a non-employee.
A 1099-NEC form might be obtained by self-employed taxpayers who engaged in freelance work or had a side business that brought in more than $600. However, fees, benefits, commissions, and royalties can also be considered non-employee income. A 1099-NEC must be used to disclose payments made to an attorney that totaled more than $600 during the tax year.
Self-employed taxpayers who made less than $600 may not have received a 1099-NEC, but they are still required to declare all of their income on their tax returns. The IRS website has a copy of the 1099-NEC form as well as the instructions.
3. What If You Don’t Get All Your 1099s
To make sure they have gotten all of their tax paperwork in time to submit their taxes, taxpayers should keep a record of every one of them. If you haven’t gotten a 1099, get in touch with the payer or employer and ask for the necessary paperwork. Taxpayers must submit their tax returns before the deadline for that year if the 1099 is delayed.
The IRS will send you a letter (actually, a bill) stating that you owe taxes on the income if the company sends a 1099 form to the IRS but you don’t receive it for some reason. Please be aware that the letter might not reach you right away, so even if you don’t receive the form, you are still responsible for paying the taxes you owe.
Even if the firm didn’t file the 1099 form, a taxpayer may be eligible to declare money under miscellaneous income if they haven’t gotten the anticipated 1099 for that income.
Therefore, in order to ensure that their income is correctly reported and not underreported, all taxpayers must keep account of any income they receive throughout the tax year.
4. Stay on Top of a New Address
Regardless of whether the payer knows your exact address, your Social Security number will be used to report the information to the IRS (and your state tax authorities). (SSN). It’s crucial to update your address with payers immediately as a result.
5. The IRS Gets Your 1099s Too
Any Form 1099 that is given to you is also forwarded, frequently a little later, to the IRS. Most taxpayers must receive their 1099s by January 31; however, others must receive them by February 15.
At the end of February, others must be paid to the IRS. Some payers transmit these to the IRS and taxpayers at the same time. Even while the majority of payers send taxpayer copies by January 31st, it is possible to wait a few weeks before gathering all IRS copies, compiling them, and sending them to the IRS. Usually, this is carried out electronically.
