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 he has paid you. The IRS provides many different types of Form 1099s, and the form need to use depends on the type of income paid.
If you earn $600 or more as a self-employed or independent subcontractor for a business from any one source, the payer 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. Sometimes clients may neglect to send you a Form 1099, however, you are still responsible for paying the taxes on these earnings.
While not technically earned, a retirement plan issues a Form 1099-R for any distributions paid that are over $10. This also 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 and that total is over $600, the IRS considers this income for you and requires any lender canceling a debt to report the total debt cancelled on a Form 1099-C. 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
If interest and investment income paid to you exceeds $10 for the year it must be be reported on the appropriate Form 1099 by the paying institution or company. Form 1099-INT is used by banks or other institutions paying interest, and Form 1099-DIV for dividends from stocks. You could receive several different 1099 forms from different payers. You must report the total of all 1099s, including your interest and investment earnings, on your Form 1040 or Form 1040A.