If you’re like many taxpayers, your income may come from sources other than a traditional job. You may work for yourself, you may receive retirement benefits or you may enjoy dividends from your investments. IRS Forms 1099 create a paper trail for keeping track of these income sources. And as the IRS describes it, third-party 1099 reporting from non-employers helps to "increase voluntary compliance and improve collections." In other words, 1099s help keep taxpayers accountable when reporting income that doesn't come from an employer.
A 1099 form reports certain types of non-employment income to the IRS, including interest, dividends and self-employment earnings.
What is a 1099?
You won’t find a specific 1099 that’s a one-size-fits-all form for all reporting categories. This is actually a series of forms that all begin with the number “1099,” each of which is custom-designed for various income sources. For example, a 1099-MISC reports payments made to independent contractors and a 1099-INT reports interest income. If you receive a 1099, it doesn't necessarily mean that you owe any tax on the amount that's shown on the form. A notable example is Form 1099-LTC (Long Term Care and Accelerated Death Benefits). Although insurance companies are required to report to the IRS the payments they make to policyholders under a long-term care policy on this form, the benefits are typically tax-free to the insured claimants.
Differences Between 1099 and W-2
The common ground between 1099s and W-2s is that the IRS classifies both as “information returns.” The primary difference is that W-2s report the income you receive from an employer, including wages, salaries and tips, and 1099s report income from a host of other sources. It's possible that you may receive a W-2 and a 1099 (or multiples of each) if you have more than one job during a tax year. For example, your primary job may be working for a university as a horticultural researcher during the week, and your secondary job may be working as a landscape designer on weekends. Your employer (the university) will provide you with a W-2, and each of your clients (from your landscape- design jobs) that paid you at least $600 will provide you with a 1099-MISC. Or you may have only one job working for an employer, but you also received more than $10 from an interest-bearing checking account. The employer will issue a W-2, and the bank will issue a 1099-INT.
How a 1099 Works
A payer generates a 1099 form. Payers are also called issuers because they issue 1099s to payees, who are the recipients of certain funds. There are many types of payers – for example, business owners who pay contractors, financial institutions that pay interest to lenders and retirement plan administrators who pay distributions to plan participants. Payers include individuals, partnerships, corporations, estates and trusts. There are also many types of payees, including individuals, beneficiaries, sellers, borrowers and debtors.
The IRS requires payers to issue 1099s for any reportable transactions. Each payer must provide copies of the 1099 according to the instructions of the specific form. For example, a payer must provide copies of 1099-MISC to the IRS, the payee and the state tax department. The payer also retains a copy and files a copy, if required, with the payee’s state income tax return.
Types of 1099 Forms
Forms 1099 cover a lot of ground, so if you thought that the only 1099 form was a 1099-MISC, the complete list of forms in this series may come as a surprise. Here's the current list as of 2018, with one example each of why you may receive that particular 1099 (many forms have more than one application):
- 1099-A (Acquisition or Abandonment of Secured Property). For full or partial satisfaction of a debt, you acquire interest in a property that secures the debt.
- 1099-B (Proceeds from Broker and Barter Exchange Transactions). You sell stock through a broker or barter exchange.
- 1099-C (Cancellation of Debt). A lender cancels a debt you owe, but you must still report the amount of debt as taxable income.
- 1099-DIV (Dividends and Distributions). You receive dividends or other distributions from a bank or other lending institution.
- 1099-G (Certain Government Payments). You receive unemployment compensation.
- 1099-H (Health Coverage Tax Credit Advance Payments). You receive an advance payment health insurance payment for the benefit of certain qualified recipients.
- 1099-INT (Interest Income). You earn more than $10 in interest from your savings account.
- 1099-K (Payment Card and Third Party Network Transactions). Your business accepts payments from debit cards or credit cards.
- 1099-LTC (Long Term Care and Accelerated Death Benefits). You receive insurance benefits for long-term care.
- 1099-MISC (Miscellaneous Income). You're a self-employed landscape designer who makes more than $600 from a client during the tax year.
- 1099-OID (Original Issue Discount). You profit from the OID of a bond, which is the difference between the issue price and the redemption price at maturity.
- 1099-PATR (Taxable Distributions Received from Cooperatives). You receive at least $10 in patronage dividends as an investor in a farm or co-op.
- 1099-Q (Payments from Qualified Education Programs). You receive benefits as the beneficiary of a 529 or Coverdell education savings plan.
- 1099-QA (Distributions from ABLE Accounts). You receive distributions from an Achieving a Better Life Experience (ABLE) savings account for individuals with disabilities and their families.
- 1099-R (Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.). You withdraw funds from your IRA.
- 1099-S (Proceeds from Real Estate Transactions). You sell real estate.
- 1099-SA (Distributions from an HSA, Archer MSA, or Medicare Advantage MSA). You received funds from a Healthcare Savings Account (HSA).
Understanding 1099 Issuing Deadlines
The payers of Forms 1099 have IRS-imposed deadlines for issuing the forms to payees as well as filing copies of the forms with the IRS. Payers are required to issue 1099s to payees by Jan. 31 (or the next business day if Jan. 31 falls on a Saturday, Sunday or legal holiday), but payers typically do not have to file 1099s with the IRS until Feb. 28. An exception to this is if a payer electronically files a 1099 with the IRS (except 1099-MISC), the IRS allows an extended filing date of April 2 by which the payer can file the form with the IRS. This means you may receive your Form 1099 from a payer in January before the payer files the form with the IRS in April. So if you receive an incorrect Form 1099, and if your payer has not yet filed the form with the IRS, the payer has time to correct your 1099 before you file your tax return and before the payer files the 1099 with the IRS – no harm, no foul. Form 1099-MISC, however, follows a different filing rule – it must be issued to payers and filed with the IRS by Jan. 31.
Reporting Your 1099 Income
Even though 1099s report income amounts that you receive from sources other than an employer, it's still income. This means the IRS requires you to report it. And even if you do not receive a 1099, you're still required to report all taxable income on your tax return. You can always contact the issuer of your expected 1099 to ask for a duplicate copy, but you'll have to report this income even if you don't receive the form. A payer may not be required to issue you a 1099, for example, if you earned less than $10 in patronage dividends from your investment in a co-op. But you still have to report this income on your tax return, even though the payer doesn't have to issue a Form 1099-PATR to you.
Filing a Paper Tax Return
You'll file Form 1040 or 1040-A to report any 1099 income on your tax return. If you're unsure which of these two forms to use, visit IRS.gov and click on the "Forms and Instructions" tab. When the page loads, enter any publication number, including the 1040 or 1040-A tax return, and the IRS search engine will take you to a list of clickable search result links. You'll find the actual tax forms there as well as the instructions for them and any worksheets you need to complete. You'll also be able to download tax return forms, which you can print if you prefer filing a paper return. If you have questions about your particular Form 1099, you'll find information about it by clicking the same "Forms and Instructions" tab at IRS.gov that you clicked to find your tax return forms.
As a heads-up, the IRS will roll out a new Form 1040 for the 2019 tax year, for tax returns you'll file in 2020, which will consolidate Forms 1040, 1040A and 1040EZ into a single form. For the 2018 tax year (taxes you'll file in 2019), continue to use the individual forms in the 1040 series.
E-Filing Your 1099 Income
In today's digital world, electronically filing a tax return is the choice of many taxpayers. If you use IRS Free File to prepare and file your tax return online, you'll be able to use free name-brand tax software (if your income is less than $66,000) or free fillable forms (if your income is more than $66,000). To access this feature, visit IRS.gov and click the "File" tab from the top menu. When the page loads, scroll down until you see "Free File." This clickable link will take you to a page that answers questions and lets you get started with your tax return.
Another online filing option is efile.com, which is an IRS-authorized e-file provider. If you visit this website and create an account, you can file your tax return and include 1099 income amounts from many 1099 forms. Although efile.com doesn't have all 1099s available yet, it does offer many of the commonly used ones, such as 1099-MISC, 1099-INT and 1099-DIV. If you choose to file your return this way, you won't have to figure out which tax return is right for you. The step-by-step process of filing electronically walks you through a series of questions that determines which form you'll file. After the correct form is selected, you'll simply follow the prompts for entering your information.
Correcting Your Filed Tax Return
Some taxpayers receive multiple Forms 1099 for a single tax year. A perfect example is an independent contractor. A self-employed contractor may have many clients during the course of a year, and she may overlook a missing 1099-MISC in a stack of 1099 forms.
After you've already filed your tax return and a missing 1099 shows up (or you find paperwork in your file for income you forgot to include on your return), the IRS allows you to correct your filed return by filing Form 1040X (Amended U.S. Individual Income Tax Return). This is one form for which the IRS doesn't accept online transmissions, so you'll have to download and print the form from IRS.gov. After you've completed the form and attached the missing 1099 (or entered missing income information without a 1099), mail it to the IRS at the address listed on the form. If the IRS owes you a refund, you'll receive a paper check. Refunds from amended tax returns cannot be sent as a direct deposit into your bank account.
- IRS: Form 1099 Misc & Independent Contractors
- IRS: A Guide to Information Returns
- IRS: Forms and Publications
- McCann Insurance Services: Do I Have to Report Benefits from a Long-Term Care Policy to the IRS?
- IRS: General Instructions for Certain Information Returns
- IRS: IRS Reminds Employees - Forms W-2, W-3, Some Forms 1099-MISC Due Jan.31
- IRS: Publication 509
- efile.com: IRS Authorized e-file Provider
- efile.com: How Do I Prepare, File a Tax Return with a Form 1099?
- IRS: Amended Returns & Form 1040X
- IRS: Amended Returns
- IRS: Information Return Reporting
- IRS: IRS Working on a New Form 1040 for 2019 Tax Season
Victoria Lee Blackstone was formerly with Freddie Mac’s mortgage acquisition department, where she funded multi-million-dollar loan pools for primary lending institutions, worked on a mortgage fraud task force and wrote the convertible ARM section of the company’s policies and procedures manual. Currently, Blackstone is a professional writer with expertise in the fields of mortgage, finance, budgeting and tax. She is the author of more than 2,000 published works for newspapers, magazines, online publications and individual clients.