As an individual or business owner, it is important to be familiar with tax forms, including the Form 1099. It is certainly one of the most popular forms seen during tax season. This form is used to report income that is received during the tax year and is not from a standard employer/employee relationship. We’re going to explain Form 1099 and everything you need to know about it from an employee and business owner perspective.
What is Form 1099? A Basic Explanation
Form 1099 is a tax form used to report various types of income received during the year. There are actually well over 10 different types of 1099 forms available by the IRS which each have different naming conventions after them. Each of the forms are made for reporting different types of income which can include:
- Interest income
- Dividends
- Capital gains
- Rent
- Royalty income
- Prizes
- Barter Transactions
- Proceeds from real estate
- Non-employee compensation
- Sales of stock or securities
It is important to note that Form 1099 should only be used to report income that is not earned through a traditional employer/employee relationship. Instead, you’d use a form W-2 as an employer or receive a W-2 as an employee.
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Who Should Receive Form 1099?
If you received income during the year that was not earned through a traditional job then you should receive a Form 1099 from the payer. Generally, you will only receive a 1099 when the income is more than $600 in the calendar year. This cuts down on businesses preparing 1099 forms when they pay out immaterial amounts.
Just remember, if you are an employee, you shouldn’t be receiving 1099.
You may receive other 1099s a few of the other 1099 forms that are commonly received are:
- 1099-INT for interest
- 1099-DIV for dividends
- 1099-K for payments from online payment transaction processors
- 1099-MISC common for rental landlords who pay repairmen
Expect to receive 1099s if you engage in any of those transactions over a year.
When Do You Receive a Form 1099?
Form 1099 must be issued by January 31st of the year following the year in which the income was received. For example, if you received income in 2023, you should receive the Form 1099 by January 31st, 2024.
This gives a window of 31 days after year-end for 1099’s to come out. Provided you get your 1099s through the mail in mid-February, your tax preparer will still have plenty of time to key them into the return.
What Information is Included on a Form 1099?
Form 1099 includes information about the various type of income you received during the tax year. Most 1099’s will include standard data such as-
- Your name, address, and taxpayer identification number of the recipient
- The name and address of the payer
- The total amount of income received
- Federal income tax withheld
Once you become familiar with form 1099, many are similar but have slight variations.
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Next Steps Once You Received Your Form
Once you receive Form 1099, you should use the information provided to accurately report the income on your tax return. If you are using a CPA or tax preparer then usually it is as simple as emailing or providing it to them. When you have received multiple Form 1099s for the same type of income, be sure to add the totals from each form.
Most tax systems will have you enter in each 1099 separately and total it up for you. The goal is to report the total amount of income received for each category like interest or dividends.
From an employer perspective, if you create a form 1099, you need to file that with the IRS by the annual deadline.
I Didn’t Recieve a 1099 (What Should I Do?)
If you believe you should have received a Form 1099 but did not, you should reach out to the payer to inquire about the missing form. This could be an investment company, landlord or prize company. If the payer is unable to provide the missing form, you should still report the income on your tax return by estimating how much income you received.
Try to follow up again and if you eventually get your 1099 and your estimate is very far off then you can amend your return.
The Information on My 1099 is Wrong – Now What?
Similar to not receiving a 1099, if the information on Form 1099 is incorrect, you should reach out to the payer to correct the information. If the information isn’t material like a simple misspelled letter on your name then you should still be able to key in your income.
It’s when your income is far off from expected that you’ll need further clarification from the payer.
What is a Form 1099? Final Thoughts
By now you should have a decent understanding of Form 1099s from an employer and employee perspective. It is one of the most important income tax forms used when there isn’t an employee/ employee relationship. Watch out for your 1099s as you get them in the mail or emails, provide them to your tax preparer and you’ll have your taxes filed by the deadline!
