The Internal Revenue Service tracks money that people earn outside of normal wages and salaries to make sure that they are properly reporting this income, and paying any taxes due on the money. Form 1099 is the document the IRS wants the payer of these other types of income to use to report how much they have paid you. The IRS provides many different Form 1099s, and the form to use depends on the type of income paid.
If you earn more than $600 as a self-employed subcontractor for a business from any one source, the payor of that income must issue you a Form 1099-MISC detailing exactly what you were paid. You then claim this income as self-employment income and offset the income with any expenses you incurred related to producing that income. Both the income and expenses are accounted for on your Schedule C, included with your federal income tax form.
While not technically earned, a retirement plan issues a Form 1099-R for any distributions paid that are over $10. This includes traditional and Roth IRA accounts, as well as 401(k) or any profit sharing plan. The Form 1099-R will detail the total amount of the distribution, as well as how much of that distribution is taxable. You would report both of these amounts on your Form 1040 or Form 1040A for the year.
Cancellation of Debt
If someone cancels a debt that you owe, the IRS considers this income to you and requires any lender canceling a debt to report the total debt cancelled on a Form 1099-C if it that total is over $600. Debts discharged in bankruptcy do not have to be reported. This amount must be included in your income, unless you are insolvent. Insolvency means that your total indebtedness exceeds your assets. Even if you are insolvent, you must still must report the cancelled debt on your income tax forms, and detail the facts surrounding your insolvency on Form 982.
Interest and Investment Income
Interest and investment income paid to you must be be reported on the appropriate Form 1099 by the institution or company paying the income if it exceeds $10 for the year. Form 1099-INT is used by banks or other institutions paying interest, and Form 1099-DIV for dividends. You must report the total of your interest and investment earnings on your Form 1040 or Form 1040A.