Form 1099 Reporting Requirements

Working “9 to 5” for an employer isn’t everyone’s cup of tea. And even though many self-employed contractors and business owners put in far more work hours each week than the standard 40 hours, the appeal of entrepreneurship outweighs the time commitment for them. You may also receive income from other non-employer sources, including retirement benefits or interest and dividend payments from investments. When you work for an employer, you receive IRS Form W-2 (Wage and Tax Statement) each year to document your earnings. But if your income comes from a source other than an employer, you'll use IRS Forms 1099 to keep track of these earnings.

What Is a 1099 Form?

For starters, a 1099 form is not a singular one-size-fits-all form. It’s actually a series of forms, all beginning with the number “1099,” that covers a lot of reporting categories representing numerous income sources. For example, independent contractors are familiar with Form 1099-MISC (Miscellaneous Income), which their clients give them, and investors are familiar with Form 1099-DIV (Dividends and Distributions), which their stockbroker, for example, gives them.

Receiving a 1099 form doesn’t automatically mean that you’ll owe taxes on the amount of money you received during a tax year. An example is the 1099-LTC (Long Term Care and Accelerated Death Benefits). The IRS requires insurance companies to report payments they make to long-term care policyholders on the 1099-LTC, but these payments are typically tax-free.

How a 1099 Works

As the recipient of a 1099 form, you’re the “payee” who receives the form from the “payer” of a non-employer payment. And because payers issue 1099 forms to payees, they’re also called “issuers.” The IRS requires these issuers to provide a form to each payee for any reportable transaction. Payers include a diverse group of taxpayers, from individuals to corporations and even estates and trusts. For example, a payer may be a bank or other financial institution that pays interest to its account holders, a retirement plan administrator that issues distributions to participants or a business owner who pays an independent contractor. Payees also include a diverse group of taxpayers such as individuals, sellers, borrowers, beneficiaries and debtors.

When a payer issues a 1099 form to a payee, the payer must also furnish copies of the 1099 to the IRS and other entities to report the income disbursement, depending on the instructions of the specific 1099 form. Some of these other entities may include the payee’s state tax department.

Difference Between 1099 and W-2

Although the IRS categorizes both 1099s and W-2s as “information returns,” these forms serve different purposes. The earnings you receive from an employer, such as wages, salaries and tips, is the income that the employer provides on your W-2 form, which you report when you file your income tax return. But you may receive other reportable income from different sources that are not classified as your employer. This income is provided by the payer of this income on the appropriate 1099 form.

You may even receive a W-2 and a 1099 (or more than one of each) if you work for more than one employer during a tax year or if you receive income from another source. For example, your primary profession may be working for an employer (a school district) as a teacher during the school year, and your summer job may be working as an independently contracted private tutor. Your employer (the school) provides you with a W-2, and each of your tutoring clients who paid you at least $600 provides you with a 1099-MISC. Or you may have one job working for an employer (who issues your W-2), and your interest-bearing checking account paid more than $10 interest during the tax year. In this case, your bank will issue you a 1099-INT.

Exploring the Types of 1099 Forms

The Form 1099 series includes a diverse group of information returns that are tailored to different types of income you may receive. Each 1099 includes a suffix that bears an initial (or initials) that hints at its name. The full name of each form is parenthetically included, along with only one example that prompts the issuing of each form (numerous forms have multiple applications):

• 1099-A (Acquisition or Abandonment of Secured Property). You are the lender for an acquired or abandoned property that secures the loan you made.
• 1099-B (Proceeds from Broker and Barter Exchange Transactions). You make money by selling stock.
• 1099-C (Cancellation of Debt). You owe a debt to a lender who cancels the debt, but the debt amount must still be reported as taxable income.
• 1099-CAP (Changes in Corporate Control and Capital Structure). You receive cash or stock as a shareholder in a corporation that was acquired or substantially changed its capital structure.
• 1099-DIV (Dividends and Distributions). You make money from dividends or other distributions through a bank or other lending institution.
• 1099-G (Certain Government Payments). You receive a state or local income tax refund.
• 1099-H (Health Coverage Tax Credit Advance Payments). You receive advance payments for a Health Coverage Tax Credit plan.
• 1099-INT (Interest Income). You receive more than $10 in interest payments from your savings account.
• 1099-K (Payment Card and Third Party Network Transactions). You receive payments through your business from credit cards.
• 1099-LTC (Long-Term Care and Accelerated Death Benefits). You receive long-term health care insurance benefits.
• 1099-MISC (Miscellaneous Income). You're a self-employed independent contractor who makes more than $600 from a client.
• 1099-OID (Original Issue Discount). You benefit from a discounted bond price, which has a lower issue price than its redemption value at maturity.
• 1099-PATR (Taxable Distributions Received from Cooperatives). You make at least $10 in patronage dividends from your investment in a farm or co-op.
• 1099-Q (Payments from Qualified Education Programs). You receive proceeds from a 529 or Coverdell education savings plan because you're the beneficiary of the plan.
• 1099-QA (Distributions from ABLE Accounts). You (or a family member) is disabled and receives distributions from an Achieving a Better Life Experience (ABLE) savings account.
• 1099-R (Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.). You receive distributions from your retirement plan.
• 1099-S (Proceeds from Real Estate Transactions). You make money by selling real estate.
• 1099-SA (Distributions from an HSA, Archer MSA or Medicare Advantage MSA). You receive distributions from your health savings account.

1099 Issuing Deadlines

Payers must comply with IRS deadlines for issuing 1099 forms to payees as well as filing copies with the IRS. Jan. 31 is the deadline by which payers must issue 1099s to payees (or the next business day if Jan. 31 is on a weekend or legal holiday). But payers typically have until Feb. 28 to file 1099 copies with the IRS. The IRS extends this filing date to April 1 (or the next business day if April 1 falls on a weekend or holiday) if the payer electronically files its forms. An exception is Form 1099-QA, which can only be filed as a paper return.

You may receive a 1099 form in January before the payer’s IRS April filing deadline. If your 1099 is incorrect, contact the payer. If he has not yet filed your form with the IRS, he may be able to correct the error and reissue the 1099 to you before filing with the IRS.

1099 Reporting Requirements

The IRS describes the goal of third-party (non-employer) 1099 reporting as helping to “increase voluntary compliance and improve collections.” It’s an accountability safeguard that encourages taxpayers who receive non-employer compensation to report this income, because the payers must also report this income to the IRS. But even if you do not receive a 1099 form, the IRS still requires you to report any taxable income you receive during the year on your tax return. Contact your payer if you do not receive a 1099 that you think you should have received.

But know that payers do not have to report all amounts to the IRS or issue you a 1099. For example, if you make less than $10 in dividends from your co-op investment, the payer does not have to issue you a 1099-PATR, but you still have to report the income on your tax return. Visit IRS.gov, click the "Forms and Instructions" tab and enter the particular 1099 form that applies to your situation in the search box. When the page loads, click on the form to read about its specific requirements.

How To File 1099 Income

Report your 1099 income to the IRS by including it on Form 1040 or 1040-A when you file your tax return. You’ll choose between these two forms, depending on your particular tax filing situation. If you don’t know which form to use, review each one by visiting IRS.gov and finding them under the “Forms and Instructions” tab. Each tax form also includes instructions and worksheets to help you choose the proper form.

Also, there are filing differences among different 1099 forms, so refer to the instructions for your particular 1099 form. This way, you'll know how to file your 1099 and where on your tax return to report this income. For example, if you receive a 1099-MISC, you’ll enter that income on Line 21 of Form 1040.

Beginning with the 2018 tax year – for the tax return you’ll file in 2019 – you’ll be able to report your 1099 income on a streamlined 1040 form. This new form, which is still in the draft phase, will combine the current Forms 1040, 1040A and 1040EZ into one consolidated form.

E-Filing Your 1099

Taxpayers have numerous electronic filing options for their tax returns if they'd rather not fill out a paper form and mail it to the IRS. The IRS offers Free File, an online tool that allows you to prepare and file your own tax return online. You can access this feature by visiting IRS.gov and clicking the “File” tab menu option. After the page loads, find “Free File” and use the clickable link to get started. If your income is less than $66,000, you'll be able to use Free File Software. And if your income is more than $66,000, you can use Free File Fillable Forms. Regardless of which option applies to you, this service is free of charge.

You can also visit efile.com to file your tax return for a nominal fee. After you create an online account here, this IRS-authorized provider provides a step-by-step process that walks you through the filing process. This digital platform allows you to include income from many types of 1099 forms. Although not all 1099s are available here, you'll find many of the commonly used forms, such as 1099-MISC, 1099-DIV and 1099-INT.