In today’s gig economy, more people are adding to or creating their own income streams by working as a contractor, freelancer or in another role where they’re not considered an employee.
If you work for an employer, you already know to watch for the W-2 form your company sends you by the end of January each year. However, when you earn money from sources that aren’t your employer, you must also keep an eye out for 1099 forms during the tax season.
When you earn money over a certain amount from a company, business or individual that isn’t your employer, you need a 1099 form to file your income taxes. However, that situation isn’t the only one that calls for a 1099 form. You might also receive a 1099 for interest earned, distributions and dividends and certain other types of proceeds.
So, what is a 1099, and why do you need the form to file your taxes? The type of 1099 you need depends on the amount you were paid and how the money was earned.
There’s no need to be confused when filing income tax if you’re unfamiliar with a 1099 tax form. Here you’ll find a guide that explains what you need to know.
What is a 1099 Form?
The Internal Revenue Service (IRS) has many different 1099 forms, each used to report a certain type of income. The entity, business or person who paid you or gave you money is required by the IRS to send the 1099 associated with the type of income earned during a tax year by January 31, following the tax year in which the income was earned.
What is a 1099 Form Used For?
When you receive a 1099, you must use that form when filing your income taxes. If you have more than one source of non-employee income, you must file a 1099 for each income source, so you may receive more than one 1099. Once you understand what is a 1099 form, you will have a record of the source and amount of the income.
The type of income earned is designated in the corresponding box on the 1099, and the type of 1099 form you receive also shows the income type. If you’re thinking about trying to keep 1099 income under the table by not reporting it, you can end up with a tax headache down the road. That’s because the 1099 has your Social Security number on it, so the IRS will know you received the money, and you must report the income on your federal, state and local income taxes.
Who Needs a 1099 Form?
Who needs a 1099 depends on how the income was earned. There are many types of 1099s, but who needs a 1099 form in a few common situations could include:
- Freelancers or third-party contractors receiving a 1099-NEC from the business or person who paid them
- Recipients of royalties or prize money receiving a 1099-MISC form
- Sellers of securities receiving a 1099-B form
What’s in an IRS 1099 Form?
All those boxes on a 1099 form may seem intimidating, but the form meaning is fairly straightforward. Generally, you’ll find the following on the 1099 form:
- Your name, address and taxpayer ID number
- Name, address and taxpayer ID number of the company or individual who issued the form
- The amount of income paid to you by the company, entity or individual during the tax year
- Amount of federal or state income tax withheld on that income
What Are the Different Types of 1099 Forms?
There are more than a dozen IRS 1099 forms, and the type of income earned dictates which form a business, person or other entity must file with the IRS and send to you for tax filing purposes. It’s unlikely you’ll come across the majority of 1099 forms for most tax years, but here are the most common.
1099 Forms for Investment Income
Several different 1099 forms apply to investment income. Your investment company or financial institution determines whether you have 1099 investment income and will file the appropriate 1099 form with the IRS and also send a copy to you. Here are four investment-income 1099s forms.
A broker and barter exchange must file Form 1099-B to report securities transactions. The broker or barter exchange must send Form 1099-B to each person that it sold stocks, commodities, regulated futures contracts, foreign currency contracts, forward contracts, debt instruments, options, or securities futures contracts for cash. You should also receive a Form 1099-B if you received cash, stock or other property from a corporation that has had its stock acquired in an acquisition of control or had a substantial change in capital structure.
Banks and other financial institutions use Form 1099-DIV to report to the IRS dividends and other distributions to taxpayers. You will receive Form 1099-DIV if the bank or financial institution paid you dividends valued at $10 or more in money or other property. The entity must also file Form 1099-DIV if it withheld and paid any foreign tax on dividends and other distributions on stock, withheld federal income tax on dividends under IRS backup withholding rules or paid you $600 or more in money or property as part of a liquidation.
You will receive a Form 1099-INT from a bank, brokerage or other financial institution if you earned more than $10 in taxable interest. The interest may be from bank deposits, accumulated dividends paid by a life insurance company, indebtedness or amounts for federal or foreign tax withheld by a financial institution.
Depending on the type of retirement plan you have, you may receive a Form 1099-R for distributions from a non-tax-advantaged retirement plan, pension or profit-sharing program. If you took a loan from your retirement plan, or received total and permanent disability payments from a life insurance contract, those amounts might also be on Form 1099-R.
Forms for Non-Investment Income
If you’re self-employed or earn income that’s not related to investments, including 1099 royalties, you’re more likely to come across these next two 1099 forms.
Form 1099-MISC is a bit of a catch-all form that reports miscellaneous income of at least $600, for recipients of prizes and awards, rents, medical and health care payments and certain other less common types of income. Form 1099-MISC is also used if you received at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
The IRS introduced Form 1099-NEC in 2020 to overlap with Form 1099-MISC, essentially taking over some of the duties of Form 1099-MISC by focusing solely on non-employee compensation for contract labor and self-employment. So, if you received form 1099-MISC for non-employee income in the past, that income will now be reported on Form 1099-NEC instead.
IRS tax rules are complex and subject to change. However, understanding the basics of the different types of 1099 forms can help ensure that you report income properly when filing your income taxes.
Knowing the different types of income you might be taxed on can help you set your financial priorities for the year ahead.
This informational material shall not be considered financial advice. The Hartford assumes no responsibility for any financial, investment, or tax-related decisions. Those seeking resolution of specific financial, legal, tax, or business issues, questions, or concerns regarding this topic should consult their own financial, investment, tax, legal, or other business consultants, advisors, or other professionals.