Banks frequently use 1099 forms to report certain transactions to the Internal Revenue Service. All 1099 forms are prepared and filed by a bank only when it makes a payment to a taxpayer – who must be furnished a copy by Jan. 31. As a result, the bank that gives you a car loan will not send you a 1099 form because it's receiving, not paying, your loan payments -- though other banks may send you 1099 forms for other reasons.
Form 1099 Rules
As of this writing, 17 variations of Form 1099 are available, and each one is used to report payments and other potentially taxable amounts on the specific form that covers the underlying transaction. The 1099 forms are only used by businesses, government agencies and other organizations. Individuals aren't required to report payments on 1099 forms unless they relate to a business transaction. For example, the 1099-MISC is commonly used by businesses to report payments made to independent contractors, whereas 1099-Gs are filed by government agencies to report unemployment compensation and income tax refunds. If you receive a 1099 from a bank or other organization, you'll use the information reported on it to determine the impact it has, if any, on your tax return. Note that the IRS receives a copy of every 1099 that's filed, so it isn't necessary to attach the forms to your tax returns.
Default on Car Loan
Because your bank is the organization that receives the car loan payments, as well as the fact that the car loan may be a personal transaction that's unrelated to a business, neither you nor the bank has any obligation to file one of the 1099 forms. If you default on your loan payments, however, not only can your car get repossessed, but the bank also may eventually write off your loan account as a bad debt and report it on Form 1099-C, Cancellation of Debt. The reason for this is because the tax law treats a cancelled car loan debt as income that you'll have to report on your return unless your circumstances are covered under an exception or exclusion, such as being insolvent at the time the debt is cancelled.
Reporting Interest Earnings
Probably the most frequently filed information return used by banks and other financial institutions is Form 1099-INT, which is required for every person and entity that a bank pays $10 or more of interest to during the tax year. Therefore, if you have an interest-bearing account with the same bank that you make car loan payments to, or any other financial institution for that matter, you may receive a 1099-INT in the mail. Because most types of interest are taxable, the interest earnings reported on all 1099-INTs you receive must be reported on your tax return.
January 31 Deadline
Other than the 1099-B, 1099-S and certain 1099-MISC forms – which are due in mid-February – banks and other 1099 filers must furnish a copy to you by Jan. 31. To prevent banks and other filers from disregarding this deadline, the IRS can charge penalties that increase in amount the more late the 1099 is.
Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.