Form 1099 is an information return used by the Internal Revenue Service (IRS) to report different types of income other than wages, salaries, and tips reported on Form W-2. It's a series of tax forms for businesses to report payments made to independent contractors, freelancers, and other non-employees or self-employed individuals throughout the tax year.
The IRS Form 1099’s purpose is reflected in the following. It:
- Helps the IRS track income that might otherwise go unreported, ensuring that all taxable income is accounted for
- Promotes tax compliance by providing a paper trail of payments made to individuals and businesses
- Allows businesses to verify and report payments made to vendors and contractors as business expenses
- Provides documentation to support claimed business expenses in case of an audit.
- Helps freelancers and independent contractors verify income when applying for loans, mortgages, or other financial services
Types of Form 1099
When it comes to Form 1099, there's a whole family of them—and each type has a specific purpose. Here are the most commonly used ones:
Form 1099-NEC
Form 1099-NEC was introduced in 2020 and replaced the previous use of Form 1099-MISC Box 7 for reporting non-employee compensation.
It’s used specifically for reporting non-employee compensation of $600 or more paid during the year, such as payments to independent contractors or freelancers, or even payments to attorneys. The filing due date is January 31st.
Form 1099-NEC is usually the one that US businesses need to file when reporting payments to contractors and freelancers.
Note: It can also be used for any federal income tax withheld under backup withholding rules.
Form 1099-MISC
Form 1099-MISC is an IRS tax form used to report miscellaneous income payments made to individuals who are not your employees. This includes, for example, rent, royalties, prizes, and certain medical and healthcare payments. It's important to note that while Form 1099-MISC was once used to report non-employee compensation, this is now exclusively reported on Form 1099-NEC.
If you make these types of payments exceeding $600 in a year, you must issue a Form 1099-MISC to the recipient and file a copy with the IRS by February 28th (paper filing) or March 31st (e-filing).
Form 1099-C
A Form 1099-C is issued by a creditor to a debtor in case of debt cancellation. This means the lender has decided to write off the debt, and you no longer owe the money. However, there's a catch: this forgiven debt is generally considered taxable income.
Common scenarios leading to a Form 1099-C include:
- When debts are discharged through bankruptcy proceedings.
- If your home is foreclosed on and the sale proceeds don't cover the mortgage, the remaining debt may be forgiven.
- In some cases, loan modifications can result in debt forgiveness.
Form 1099-B
Form 1099-B is provided by your broker or financial institution to report the proceeds from the sale or exchange of various investments, such as stocks, bonds, mutual funds, and other securities.
The form includes details about the date of sale, the quantity of the asset sold, the sales price, and any related commissions or fees. It may also include the cost basis of the sold asset, which helps determine your capital gain or loss.
Accurately reporting this information on your tax return is essential to ensure correct calculation of any capital gains tax owed.
Form 1099-INT
Form 1099-INT is issued by institutions like brokerage firms, banks, and credit unions to report the interest income you earned during the tax year.
This form is commonly received if you have a savings account, certificates of deposit (CDs), or other interest-bearing accounts. It details the total amount of interest income earned, which is taxable and must be reported on your tax return.
In some cases, Form 1099-INT may also include information about federal or state income tax withheld from your interest payments, and any early withdrawal penalties.
Form 1099-DIV
Form 1099-DIV is sent to report income income from dividends: stocks, mutual funds, or other investment products during the tax year. This form provides detailed information about the dividends paid out to you, including the total amount of ordinary dividends, qualified dividends, and any capital gain distributions. It may also report any foreign tax paid, federal income tax withheld, and investment expenses.
The information on Form 1099-DIV is crucial for accurately reporting dividend income on your tax return, as different types of dividends are taxed at different rates, with qualified dividends often taxed at a lower rate.
Form 1099-K
Form 1099-K is used to report payments you received through third-party network transactions, like via PayPal, or from credit card processors. This form is typically issued if your payment transactions exceed certain thresholds, which currently are more than $600 in gross payments in a calendar year.
Form 1099-K includes details such as the total amount processed, the number of transactions, and any federal income tax withheld. This form is essential for freelancers, gig workers, and small business owners, as it helps ensure that all income, especially from digital platforms, is reported for tax purposes.
Form 1099-R
Form 1099-R is issued to report distributions you received from retirement plans such as pensions, individual retirement accounts (IRAs), 401(k) plans, life insurance contracts, or annuities.
The form details the total distribution amount, the taxable portion, and any federal or state income tax withheld. It also includes information about the type of distribution, such as whether it was an early withdrawal, a normal distribution, or a rollover to another retirement account.
Accurate reporting of this information is critical for ensuring that the correct tax treatment is applied, as some distributions may incur penalties or be subject to specific tax rules.
Form 1099-G
Form 1099-G reports various types of government payments made to you during the tax year, including unemployment compensation, state or local income tax refunds, and certain agricultural payments.
If you received unemployment benefits, this form will show the total amount paid to you, which is generally taxable income. For tax refunds, Form 1099-G is issued only if you itemized deductions in the previous year.
The form also details any federal or state income tax withheld. Accurately including this information on your tax return is essential to avoid underreporting income or overpaying taxes.
Form 1099-S
Form 1099-S is issued when there is a sale or exchange of real estate, including land, buildings, and other types of real property.
The form reports the gross proceeds from the transaction, which is the amount you received from the sale. This information is crucial for calculating any capital gain or loss resulting from the sale, which must be reported on your tax return.
Both buyers and sellers may receive a Form 1099-S, and it is typically provided by the closing agent, such as a title company or attorney, involved in the real estate transaction.
How to file 1099 forms
Forms from the 1099 family are typically filled out by the payer, not the recipient.
Each form has its own set of rules for correct filing, but in general, if you’re sending the form to a contractor you made payments to, you need to make sure you have collected all the necessary information, and that it’s accurate and up-to-date.
You typically need the contractor’s:
- Legal name
- Current address
- Taxpayer Identification Number (TIN) - in this case Social Security Number (SSN)
You can use the contractor's Form W-9 as a primary source for this information. If your contractor fails to provide a W-9 or TIN or provides inaccurate information, the IRS might mandate that you deduct 24% of the payment. This is important to highlight, as companies usually don’t withhold any taxes from contractor payments.
You will also need to enter your company’s information into the form, such as:
- Business name
- Business address
- Employer Identification Number (EIN)
Then, you will fill out the corresponding boxes, depending on which form you’re filing. You can find some general instructions on the IRS official website.
Some forms will have additional filing requirements.
For example, when filing paper Forms 1099-NEC, you must include Form 1096 as well. This form acts as a cover sheet for your submissions, and if you're filing multiple types of information returns (like 1099-NEC, 1099-MISC, and 1099-K), you need to prepare a separate Form 1096 for each type.
Form 1096 is not required if you file electronically, as the electronic system incorporates the necessary summary information.
Also, Form 1099-NEC has several copies that you need to distribute accurately:
- Copy A goes to the IRS
- Copy 1 is meant for the state tax authority if required
- Copy B is sent to the contractor so that they can file their federal income tax return (and to meet the due date requirement, the form needs to be correctly addressed and sent before January 31)
- Copy 2 is also meant for the contractor and their state tax purposes
- Copy C is kept in your records
Frequently asked questions about Form 1099
What's the difference between a 1099 worker and a W-2 employee?
1099 workers are freelancers or independent contractors who work with companies as clients, while W-2 employees are part-time or full-time employees on a company’s payroll. While employees receive a salary, 1099 workers work for nonemployment compensation and are paid through invoices—usually per hour, per project, etc.
1099 workers have more control over their work, are responsible for their social security and medicare taxes, and don't receive employee benefits (such as paid time off) from the companies that engage them. W-2 employees work under the direct control of their employer, have taxes withheld from their paychecks, and typically receive benefits like health insurance and paid time off.
Can you send both a W-2 form and a 1099 to the same worker in the same year?
Yes, an individual can receive both a W-2 and a 1099 form in the same year. This often happens when someone starts working with a company as a freelancer, but then transitions to full-time employment. Both types of income must be reported on the tax return separately.
How do I correct a mistake on a 1099 form that's already been filed?
To correct a mistake on a filed 1099 form, you need to file a corrected form. Use the same form type, but mark the "CORRECTED" box at the top. Submit the corrected form to both the IRS and the payee, following the same procedures as for the original form.
Are there penalties for a late submission of Form 1099-NEC?
Missing the deadline for filing Form 1099-NEC can result in penalties, which can quickly pile up and impose significant expenses to your company. The IRS imposes a late filing penalty ranging from $50 to $270 per form, depending on how late the forms are submitted.
If you need more time, you can request an extension by filing Form 8809 by January 31st by mail.
Do small businesses and the self-employed need to file 1099 forms?
Usually—yes. If you're a business owner or self-employed individual who made certain payments during the calendar year, you probably need to file an information return with the IRS.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.