What is a 1099 form?
If you are wondering, "what is a 1099 form?" you may be getting one sent out. You should be receiving one by mail or email from every client or platform that paid you over $600 in 2019. Below we are going to breakdown what's a form 1099-Misc, and what you'll need to do for tax preparation.
What's a 1099?
Before we begin, we'll first need to explain what exactly a 1099 form is and who is supposed to get one.
The 1099 form records that a person or company, not your employer, paid or gave you money. This is different than a formW-2, which you receive from your employer. This is because you are technically not employed by the person or entity who sent you the 1099 form. You are technically a small business.
If you are a freelancer or self-employed worker who works any independent contractor jobs, you fall under this category.
A 1099 tax form reports the total income you earned from a freelancing client or contracting platform. Whether you drove for Doordash, freelanced on Upwork, ran your own professional services business or your own part-time 1099 work, you should be receiving some version of this form in the mail between now and February 1st. It’s important to keep track of this form because you’ll need it in order to file or e-file your income taxes.
What if I haven’t gotten the tax form?
The forms are required to be sent by Feb 1st - so you still have two weeks before you should be worried.
If, after Feb 1st you still haven’t received them, you should go through the following checklist:
- Are you sure you earned more than $600 from this platform / client? If not, then you won’t be needing the form. Note: this limit might be higher, depending on the platform. See examples below.
- Check your email & spam folder. Sometimes platforms send these forms digitally.
- If you moved last year, it’s likely that the forms were sent to the wrong address. In this case, you should reach back out to the platform / client and request they be re-sent.
- Use our 1099 tax calculator tool to get an estimate of much money you owe to the government.
Also, many big contracting platforms have much higher limits for sending the form:
- Upwork and PayPal 1099 tax forms are only sent out if you made over $20,000 and had at least 200 deposits.
- Uber, Lyft, only send a 1099-K or if you earned more than $20,000 driving, or more than $600 from driver referrals and other miscellaneous payments.
- Online consumer product sales platforms such as Etsy, Amazon, and Shopify only send you a 1099 tax form if you earned more than $20,000 and had over 200 sales.
If you fall below any of these limits, you’ll need to go through and add up your income from the platform / client yourself. This is typically something you can do by logging into the platform dashboard and viewing a record of your transactions and adding them up one-by-one. Do not include any commissions and fees paid to the platform - just add up the total money you received from the platform. Note: We’re working on adding a way to automatically sum up this income from your bank statements, at Keeper Tax.
How to interpret a 1099 tax form
There are a lot of things you need to know when you get a 1099 form. A 1099 tax form simply sums up the total payments made to you as a contractor over the course of the year.
There are many subtypes of 1099 tax forms you can receive. You don’t need to worry too much about what kind of form you received - they all work pretty much the same way. For self-employment contractors and freelancers, the most common ones are forms 1099-MISC and 1099-K. For now, just hold onto the form. You’ll need to input it into Keeper Tax when you file your independent contractor taxes.
What NOT to do
If you receive a 1099 tax form, use it. DO NOT report a different income than what’s on your form. For example, if the income total on your 1099 tax form includes commissions and fees, you’ll need to separately report those as 1099 tax deductions (we can help). This is critical, because the same form you received was also sent directly to the Internal Revenue Service or IRS by the platform / client directly. Reporting a different number will cause an immediate risk of audit.
If you earned more than $600 but didn’t receive a 1099 form, that does NOT mean you can skip reporting this income to the IRS and making tax payments. That’s tax fraud, and can get you in serious trouble.
Important Things You Need to Know As An Independent Contractor
You might be asking yourself: if you don't officially work for the entity that is sending you a 1099 form, do you have to report those earnings to the IRS?
The answer is yes. When you receive your 1099 form, you'll notice that it has both your taxpayer identification number and your social security number on it, meaning that the IRS knows you've received that money. Therefore, they will know if you don't report income, resulting in some serious consequences.
However, don't panic if you receive a 1099 form: this doesn't necessarily mean that you owe taxes on that money. You may have deductions that offset the income and lowers your government payments.
For example, if you purchased a new laptop to complete freelance writing, that purchase can be considered a deduction. Just make sure you keep your proof of purchase, as you'll have to provide adequate proof for this deduction to be accepted.
Who Can Send Me a 1099 Form?
As mentioned earlier, your employer does not send you a 1099 form. If you do happen to get one, your workplace sees you as an independent contractor and not an employee. You'll never get both a W-2 form and a 1099 form since these serve two different purposes.
Is There More Than One Type of 1099 Form?
Yes. There are a variety of 1099 IRS forms a payer may send you. They all have to do with different types of income you might have received throughout the year, all of which you will need to report to the IRS.
The 1099-A form can be sent to you if your mortgage lender canceled or forgave a portion of your mortgage. This can also happen if you had a short sale of your home. The IRS thinks of canceled debt as income, which means it is generally taxable and needs to be reported.
You will receive a 1099-B form from the sale of different types of securities, as well as certain types of bartering that take place in bartering exchanges. This is most commonly see on bartering websites. If this is the case, then the exchange could send you a 1099-B form for the income you received from the exchange.
Although a 1099 form isn't required for these types of transactions, you might receive one. If you do, you still have to report the income.
If you have settled your debt with a credit card issuer or another lender for less than you owe, then you may receive a Form 1099-C. This means that the amount that the lender forgave is considered taxable income, which you will need to report.
If you own shares of a corporation that either underwent a large change in capital structure or was acquired, you could get a 1099-CAP form. However, this will only happen if those possibilities resulted in you gaining property, stock, or cash.
A common variation of the 1099 form, the Form 1099-DIV is used to report dividends that you receive. Dividends on your share account at a credit union do not count towards this.
Receiving the form 1099-G is possible if you were unemployed during the previous year or received money from the federal, state, or local government. These can include things like an offset, credit, or a tax refund.
The 1099-INT will only apply to you if you have earned more than $10 worth of interest from a financial institution such as a ban or a brokerage.
If you qualify, this form is sent to you by your insurer. This can happen if your long-term care insurance paid you benefits the previous year, or if you've gotten death benefits from a life insurance policy.
Many companies use Form 1099-Misc for contractors. The 1099-MISC covers exactly what it says: miscellaneous income. This form is considered a catch-all for any income that might not properly fit into any of the other categories. Income from things like awards or prizes is two examples.
The 1099-NEC is a relatively new form. This is used to report money that organizations paid to people who did work for them in a contractor or freelance capacity but are not considered employees. Starting in early 2021, the 1099-NEC will be used for this purpose rather than the previous option of the 1099-MISC.
This form will apply to you if you've gotten bonds, notes, or other financial instruments at a lower rate to the redemption value at maturity or face value.
If you are a member of a co-op and have received at least $10 in patronage dividends, you'll receive the 1099-PATR form.
The 1099-Q form reports money that you, your child, or your child's school receive from a 529 plan. If you receive this form, don't panic: you most likely won't need to pay taxes on this money. When these earnings are used for qualified education expenses, they aren't subject to tax. If this is the case, you can simply keep your 1099-Q form for your records.
Much like the 1099-Q form, you might only need to keep the form 1099-R for your records. This applies when you received distributions from an IRA or annuity, a profit-sharing program, a retirement plan, or a pension.
If your retirement plan is tax-advantaged, then you don't need to worry about filling this one out. However, if you took a loan from your retirement plan, you might have to treat it as a distribution and report it on this form.
You can receive this form from anyone responsible for closing a sale or exchanging real estate, which serves to report the proceeds. Again, this doesn't always mean that these proceeds are taxable in every situation, so make sure to do your homework before filling this one out.
The 1099-SA will be sent to you if you've taken any distributions from your HSA, or health savings account. However, these won't be taxable if you've used them to pay for qualified health expenses. Again, do your homework with this one.
How Do You Report Your 1099?
No matter what type of 1099 you get, you'll almost always need to report it when filing your taxes. You can do this in several ways.
First, if you prefer to do your own tax return using a tax software program, the program will ask you if you have any 1099 income. In this instance, you simply need to input the information from the 1099 form you received.
If you are paying someone to do your taxes for you, simply give them the 1099 form and the usual documents you provide.
If you've been stressed over who gets a 1099 form, know that it's actually not so bad! There are plenty of resources available if you are getting a 1099 form for the first time or if you just want to make sure you're doing everything correctly.
If you want to be extra cautious a the end of the tax year, then hiring a licensed CPA. preparer or tax professional to do your taxes for you might be your best option. This way you will have someone to give you tax advice and answer any specific questions that you might have.