The IRS has a long series of forms that begin with the numbers “1099.” Let’s go over the 1099 tax forms you need to know about.
1099 Tax Forms
The 1099 tax forms are all information returns. An “information return” is not a tax return. Instead, it is a form that provides the IRS with information about a financial transaction.
The IRS uses these forms for taxable income that isn’t considered salary and wages/or is not withheld. The IRS requires whoever paid you to file the form with it, as well as give you a copy.
IRS computers automatically check the amounts on the information returns the agency received against the income reported on your return. If you’ve reported less income than shown in the information return, you can expect a letter demanding payment of extra taxes, interest, and penalties.
How well does the information reporting program work? During one recent year, the IRS received over 2.23 billion information returns. Its automated underreported program contacted over 4.5 million taxpayers using the information on these returns. These contacts resulted in additional tax assessments of $7,112,605,000.
Fortunately, if you’re a self-employed sole proprietor or small business owner, you likely only need to be concerned with a few types of 1099 forms.
1099-MISC Tax Form
For most self-employed people, IRS Form 1099-MISC, Miscellaneous Income is by far the most important type of information return. This form must be filed by a client or customer who pays an independent contractor (nonemployee) at least $600 for professional services during the year.
A copy is filed with the IRS and your state tax department.
Yet, Form 1099-MISC need only be filed if you are paid by cash or check. Electronic and credit card payments are not reported on this form—they need not be reported at all by the client, but the payment processor may have to report them on Form 1099-K as described below.
Form 1099-MISC need never be filed for payments to corporations (except for payments to lawyers and doctors).
1099-K Tax Form
If a client pays you through a third party network like PayPal or Payable, or through an online hiring platform like Uber or Upwork, the network or platform must file a 1099-K with the IRS if you are paid over $20,000 and have more 200 transactions during the calendar year.
Yet, if you have a credit card merchant account and directly accept payment from a client’s credit card or debit card, the bank or other financial institution that pays you must file Form 1099-K no matter how little you’re paid during the year.
Form 1099-INT Tax Form
Financial institutions are required to file this form if they pay you more than $10 in interest during the year.
1099-DIV Tax Form
This form must be filed if you own stock or other securities and receive over $10 in distributions, such as dividends, capital gain distributions, or nontaxable distributions, that were paid on stock and liquidation distributions.
1099-B Tax Form
Brokers or mutual fund companies must file this form when you sell stock. It shows the amount and date of the sale and provides cost basis information.
1099-R Tax Form
This is the form filed when you get a distribution from a retirement plan, such as an IRS, Roth IRA, 401(k) plan.
What to Do with the Information Returns
Be sure to save all information returns you receive. Most need not be filed with your tax return, but there are exceptions. If you have a tax preparer, give him or her all your information returns.
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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.