Who Gets a 1099 Form?
Doing your taxes can be a stressful, confusing and a downright complicated process. You need to make sure that everything is done right. However, as a beginner you might not know who gets a 1099 form or how to file your own self employment income. There may be many questions running through your head.
What forms do you need? How do you fill out those forms correctly? How do I calculate my 1099 tax rate?
For those who receive a 1099 form, the process can be even more complicated. For a complete guide to the 1099 forms, including information about who gets them, keep reading below.
First, What is a 1099 Form?
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 you money. This is different than a form W-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. Typically
If the payee is an independent contractor or someone who does freelance work, they fall under this category.
Important Things You Need to Know
You might be asking yourself: if you don't officially work for the company that is sending you a 1099 form, do you have to report those earnings to the Internal Revenue Service (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 it, 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 the total gross proceeds. You may have tax deductions that offset the income, such as the home office space deduction.
Also, 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 payer 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 and a 1099 tax form from the same employer since these serve two different purposes.
Is There More Than One Type of 1099 Form?
Yes. There are a variety of 1099 forms. They all have to do with different sources of income payments you might have received throughout the tax 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 1099-C form. 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 1099-DIV is used to report dividends that you receive from stocks and investments. Dividends on your share account at a credit union do not count towards this.
Receiving the 1099-G form is possible if you were unemployed during the previous calendar 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 income from a financial institution such as a ban or a brokerage. This includes annual percentage yields (APY) from savings accounts.
The Form 1099-K is the income from your Payment Card and Third Party Network Transactions company. It is used to report payments received through third party payment settlement companies. Some examples include PayPal, Stripe, and Square. eBay sellers, ecommerce, retail stores and freelancers are most likely to get this form. It will usually be sent to you if you grossed over $20,000 and had over 200 transactions with your chosen payment company. Unless you live in Vermont or Massachusetts, then you will get one if you made over $600.
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.
The Form 1099-MISC covers exactly what it says: miscellaneous income. This form is considered a catch-all for types of income that might not properly fit into any of the other categories. Income from things like awards, prizes, and most other nonemployee compensation such as freelancing.
The Form 1099-NEC is a relatively new form. This is used to report types of payments that organizations paid to people who did work for them as a contractor or freelancer 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.
If you are a freelancer or self employed individual then you will need to estimate how much you have to pay on your 1099 income, so you can save that amount for tax time.
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 1099-R form for your records. This applies when you received distributions from an IRA or annuity, a profit-sharing plans, 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.
Filers 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, also known as a 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 state and federal income 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.
No matter which route you decide to go, it's a good idea to use a calculator so you know how much to save from your 1099 income. Otherwise you won't be able to pay your tax bill on time.
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 an 1099 IRS form for the first time or if you just want to make sure you're doing everything correctly. Check out www.IRS.gov for complete instructions on each 1099 form.
If you want to be extra cautious, then hiring someone to do your taxes for you might be your best option as a small business owner or self employed individual. This way you will have someone to answer any specific questions that you might have that can guide you through the process.