What is an IRS Form 1099 and What is it Used For

What is an IRS Form 1099 and What is it Used For

Last Updated December 29, 2021

IRS 1099 Form is a bunch of forms that report several types of income. You make use of your IRS Form 1099s to figure out how much income you made during the year and what kind of income it was. Then you will need to report that income in different places during your tax return, depending on income kind.

Form 1099 is used to report non-salaried income to the IRS for tax purposes. Every year it is mandatory for businesses, companies, and other agencies across the country to send out Form-1099 to specific employees. However, 1099 forms are not for employees who earn wages or receive a salary.  The forms report different types of income individuals to receive throughout the year. This includes independent contractor income, dividends and interest, government payments, withdrawals from a retirement account, and 1099-C for debt cancellations. Examples of independent contractors include freelance writers, contracted construction workers, artists, and other workers who performed contracted work. As freelance-style work has gained popularity in recent years, more people have to fill out IRS Form 1099. It is similar to a Form W-2, which is given to the regular employees.

Even if you are not a freelancer, You may get a 1099 form for several other reasons. For instance, the IRS requires businessmen and corporations to send 1099-MISC Forms to people they’ve paid. If you paid independent contractors a total of $600 or more during your tax year, you must report their income on Form 1099-Misc. The payment could be in the form of cash, rent, exchange of services, prizes, and awards, and just about anything else that has a market value.

Some of the examples of independent contractors are:

  1. Content Writer
  2. Photographer
  3. Plumber
  4. CPA
  5. Logo Designer
  6. Application Developer
  7. Accountant
  8. Web Developer

How a 1099 Form Works, Procedure of Filing the 1099 Form

There are two copies of Form 1099 MISC

Copy A and Copy B

If you take services from an independent contractor, you must report what you pay to them on Copy A, and submit it to the IRS. You must communicate the same information on Copy B, and send it to the contractor.

If you are an independent contractor and you receive a Form 1099, Copy B from a client, you do not need to send it to the IRS. You need to report the income listed on Copy B on your personal income tax return.

Steps Involved in Filing Form 1099 MISC

  • Collect the Required Information

    • The total amount you paid to an independent contractor during each fiscal year.
    • Their legal name
    • Their address
    • Their taxpayer identification number (possibly their Social Security Number, except they’re a Non-Resident)

The conventional method for collecting such information is to have every contractor fill out a Form W-9. (A W-9 form is also known as a Request for Taxpayer Identification Number and Certification form.)

Verify your bookkeeping records to confirm the exact payment you made to each contractor during the taxation year. Once you have all of the relevant information, use it to fill out Form 1099-MISC.

  • Submit Copy A to the IRS

Copy A of Form 1099-MISC must be submitted to the IRS by January 31, 2020, irrespective of whether you file online or by post.

When you file a physical Form 1099-MISC, you cannot download it and submit a printed version of Copy A from the IRS website. Instead, you need to obtain a physical Form 1099-MISC, fill out Copy A, and mail it to the IRS.

  • Submit Copy B to the Independent Contractor

Once your Form 1099-MISC is complete, send Copy B to all of your independent contractors before  January 31, 2020.

You are allowed to download and print a version of Copy B from the IRS website and send it to your independent contractor.

  • Submit Form 1096

If you file a physical copy of Form 1099-MISC, Copy A to the IRS, you also have to complete and file Form 1096. The IRS uses Form 1096 to keep a trail of every physical 1099 you file for the year. January 31, 2020 is the deadline for Form 1096.

  • Check if You Need to Submit 1099 Forms with Your State

Subject to where your business is located, you may also have to file 1099 forms with the state. Consult with your CPA and ensure you’re on the right path along with your state’s 1099 filing requirements.

The Form submission deadline (specifically 1099-MISC) is January 31st. You need to send all 1099s to the recipients and file them with the IRS by this deadline. Take into account, this is a change from over the past year.

Types of 1099 Tax Form

Although IRS Form 1099-MISC is one of the most common 1099 Forms, There are a total of 20 types of  1099 tax forms you should be aware of. Below is a brief introduction about each type of IRS Form 1099, so you know what to do in case you receive one.

  1. 1099-A, Acquisition or Abandonment of Secured Property
  2. 1099-C, Cancellation of Debt
  3. 1099-B, Proceeds From Broker and Barter Exchange Transactions
  4. 1099-CAP, Changes in Corporate Control and Capital Structure
  5. 1099-DIV, Dividends and Distributions
  6. 1099-G, Certain Government Payments
  7. 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments
  8. 1099-INT, Interest Income
  9. 1099-OID, Original Issue Discount
  10. 1099-K, Merchant Card and Third-Party Network Payments
  11. 1099-LS, Reportable Life Insurance Sale
  12. 1099-LTC, Long-Term Care and Accelerated Death Benefits
  13. 1099-MISC, Miscellaneous Income
  14. 1099-PATR, Taxable Distributions Received From Cooperatives
  15. 1099-Q, Payments From Qualified Education Programs (Under Sections 529 and 530)
  16. 1099-QA & 5498-QA, Distributions From ABLE Accounts
  17. 1099-R & 5498, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc
  18. 1099-S, Proceeds From Real Estate Transactions
  19. 1099-SA & 5498-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
  20. 1099-SB, Sellers Investment in Life Insurance Contract

Preparing and filing 1099 Forms is always an energy and time-taking job. A slight mistake can cost you a great deal. The best way to save time and money is to consider taking consultation or services from a professional accountant.

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