IRS 1099 Form Explained
Table of Contents
Key Takeaways:
- A 1099 form, also referred to as an information return, is a tax form used to report all non-employment income to the IRS.
- The payer is required to fill out a 1099 form and send it to freelancers, independent contractors, and gig workers who earned more than $600 during the tax year as a nonemployee.
- The deadline for payers to fill out and send 1099 forms to contractors is usually January 31st, and the deadline for contractors to report their 1099 earnings is April 15th.
- There are multiple types of 1099 tax forms used to report pay to the IRS, including 1099-A, 1099-B, 1099-C, 1099-DIV, 1099-G, 1099-INT, 1099-MISC, 1099-OID, 1099-PATR, 1099-R, 1099-S, and 1099-SA.
What Is the 1099 Form?
An IRS 1099 Form is used to report any non-employment income to the IRS. The income that must be reported using 1099 forms includes any money received outside of their regular salary or hourly wages that are reported on their W-2 form.
Who Receives A 1099 Form?
The types of taxpayers who receive 1099 tax forms can vary based on their employment methods and industries. In general, people will receive a 1099 form if they have been paid more than $600 for some work completed that is not included in regular part-time or full-time employment. These types of workers include freelancers, independent contractors, and gig workers.
Freelancers
A freelancer or freelance worker is a self-employed worker who temporarily provides products or services to organizations. As a freelancer, these non-permanent workers can take on as many projects and clients as they choose.
Additionally, they can set their own rates and organize their schedule. Freelancers are required to process their own tax payments and report all of their taxable income to the IRS when they are filing their taxes.
Some examples of freelancers include graphic designers, website designers, copywriters, and editors.
Independent Contractors
An independent contractor is an employee who temporarily works for multiple clients at the same time. Compared to a freelancer who may take on a one-off project, independent contractors are often hired to take on larger or longer-term projects. Independent contractors are also required to pay self-employment tax and file taxes using 1099 forms.
Some examples of independent contractors include healthcare professionals and lawyers.
Gig Workers
A gig worker is an individual who takes on individual projects or jobs, often in the context of the gig economy. Gig workers are also responsible for paying self-employment taxes and reporting any monetary compensation to the IRS.
There are different types of gig workers that work on short-term projects or tasks, such as Uber or Lyft drivers, copywriters who work on freelance websites, or artists.
Who Must Fill Out 1099 Forms
Businesses that hire independent contractors for more than $600 for work during a single tax year will be responsible for filling out a 1099 form and sending it to the workers by the deadline. Therefore, it is the payer and not the worker who is responsible for completing this taxpayer requirement.
When Are 1099 Forms Sent Out?
Taxpayers should usually receive any 1099 forms for a working year by the deadline of January 31 of the following calendar year. In the situation that January 31 falls on a weekend, the deadline is extended to the next business day.
While most 1099s are due to be sent by January 31, there are certain subtypes of 1099s that are due by February 15, such as 1099-S.
What To Do If You Don't Receive A 1099 Form
If you are a freelancer or independent contractor who has not received a copy of a 1099 form from a client by the January 31 deadline, even though it is the company’s responsibility to send the form, you will need to follow up with the client to ensure you receive the required information before the regular Tax Day filing deadline in April.
When Must IRS 1099 Forms Be Filed?
After receiving a 1099 form in the mail in January, taxpayers can keep this important document stored with their tax records until they file their income tax return by the annual deadline of April 15.
Penalties For Missing The 1099 Filing Deadline
Failing to file 1099 forms by the April deadline can lead to IRS penalties starting at $50 depending on how late the deadline is missed and if the failure to file was intentional or unintentional. It is beneficial to add Tax Day to your calendar to ensure you do not miss essential filing deadlines and accrue unnecessary monetary penalties.
When Are IRS 1099 Forms Not Needed?
There are certain instances where 1099 forms are not required. For example, if an independent contractor is registered as a C corporation or an S corporation, the payer will not need to fill out a 1099 form because the worker is registered as a corporation rather than an individual.
Additionally, workers who are distinguished as full-time or part-time employees are not classified as independent contractors, so instead of filling out a 1099 form to report their earnings, the payer will need to fill out a Form W-2 to report the wages, tips, and compensation they were paid throughout the tax year.
Businesses that hire freelancers or contractors through freelance marketplaces such as Fiverr or Upwork also do not have to fill out 1099 forms.
Types Of 1099 Forms
There are multiple types of 1099 tax forms or information returns that are used to track and report income to the IRS.
1099-A
IRS Form 1099-A may be issued to taxpayers who experience canceled debt, as this is generally seen as taxable income by the IRS. This situation could include a short sale of their home or their mortgage lender canceling a portion or all of their mortgage.
1099-B
IRS Form 1099-B is the tax form used to cover the income a taxpayer earns during the sale of certain securities or bartering exchanges.
1099-C
IRS Form 1099-C is used in a situation where a taxpayer persuades a lender, such as a credit card issuer, to settle their debt for less than the balance they owed, as this forgiven amount is likely to be considered taxable income.
1099-DIV
IRS Form 1099-DIV is the tax form used to report dividends, not including the dividends on their shared account at their credit union as those are considered interest.
1099-G
IRS Form 1099-G is used to report any money received from the local, state, or federal government, such as tax credits, tax refunds, offsets, or unemployment.
1099-INT
IRS Form 1099-INT is used to report any interest income from any type of financial institution, band, or brokerage, as long as the interest amount exceeds $10.
1099-MISC
IRS Form 1099-MISC is the miscellaneous version of this tax form that is used to report income that does not apply to one of the other 1099 categories.
1099-OID
IRS Form 1099-OID is used to report savings when taxpayers purchase financial instruments, such as bonds or notes, at a discount to the redemption value or face value at maturity.
1099-PATR
IRS Form 1099-PATR is used to report patronage dividends for those who belong to a co-op and receive $10 or more during the tax year.
1099-R
IRS Form 1099-R is used by taxpayers to report any distributions received from a retirement plan, pension, IRA, annuity, or profit-sharing program.
1099-S
IRS Form 1099-S is a tax form used to report the taxable proceeds for closing a sale or exchange of real estate.
1099-SA
IRS Form 1099-SA is an IRS form used to report distributions taken from a health savings account or Medicare Advantage.
1099 Form Copy A Vs. Copy B
There are always two copies of IRS Form 1099 that are involved in the tax filing process: Copy A and Copy B.
Copy A is the 1099 form that the payer fills out. They must include the name, taxpayer identification number (TIN), and address for both the payer and the contractor, as well as a report of the amount they were paid during the tax year. This copy is for the payer to keep.
Copy B of the 1099 form includes all of the same information as copy A, except Copy B is the version of the form that is sent from the payer to the independent contractor. The independent contractor can use the information reported on Copy B when they file their personal income tax return.
If you have any questions about your responsibilities as a payer or as an independent contractor regarding IRS 1099 forms, the tax experts at Ideal Tax are here to help. Schedule your free consultation today to enjoy the benefits of saving as much money as possible when reporting your income taxes.
Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.
