When tax season arrives, you will find an influx of necessary tax forms coming in your mail each year. Among these forms, you may find a 1099 form, a document that details any income you received outside of the salary paid by an employer. While these forms may be quite significant for taxes, they can be a bit complex. In this blog, we will discuss every single thing about the 1099 form, from its definition, different types, how they work, what should be done after receiving 1099 forms, and how to file a 1099-NIC form. However, before that, let us know more about the 1099 form.
What Is A 1099 Form?
A 1099 form is an Internal Revenue Service tax form known as an information form. That means it reports certain information on the income you received required for your taxes. There are multiple 1099 forms used to report different sources of income, and this can be anything from interest income to unemployment benefits.
If you are a freelancer or independent contractor, you will likely receive a 1099-NEC form from the employer you have done work for.
Types of Form 1099
There are multiple types of 1099 forms, each created to report a different type of income that you have got. Some common types of 1099 form generally include:
If you are an independent contractor or freelancer, you will surely start hearing a lot about the 1099-NEC (non-employee compensation) form. Moreover, this form includes how much you earned for services you performed for someone who isn’t your employer.
If you received an interest income of at least $10 during the year, you would be issued a 1099-INT form to report that earnings. For instance, if your bank pays you $10 in interest, they will send you a 1099-INT form at the end of the year, helping you report that income on your tax return.
The 1099 DIV form primarily reports dividend income from a mutual fund or stock. You will receive this for dividend distributions of $10 or more, similar to the 1099-INT form.
You will receive a 1099-G form if you get governmental payments such as unemployment benefits. While there are numerous purposes for this form, it is generally used for two payment types such as local or state income tax refunds or unemployment compensation.
Despite the payment type, you may need to include some of the information from this form on your return. Moreover, the payment may or may not be taxable to you based on the specific situation.
Previously, any salary that you received from your independent contractor job was included on a 1099-MISC form. It was started in 2020, and the income is recorded on your 1099-NEC form. However, the form still contains lots of significant income information. Miscellaneous income such as rent allowances or legal settlements is included on a 1099-MISC form.
You may receive a 1099-K form if anyone pays you using a credit card or a third-party payment processor such as Paypal. However, there is quite a high limit for issuing this form. You will only receive it if you were paid more than $20,000 or you received more than 200 payments.
This form is generally for distributions you got from retirement plans, IRAs, annuities, pensions, and profit-sharing programs. Also, a retirement plan loan may qualify you to receive a 1099-R.
What Should Be Done After Receiving A 1099 Form?
A 1099 form is a crucial document to help you file your income tax return. The first step is to check it for accuracy when you receive it. Have they included the exact personal information such as taxpayer identification number or name? Is the amount of income they are reporting accurate? If anything mentioned is incorrect, you will need to contact them urgently to make a correction.
Moreover, if everything is correct, ensure to keep a copy of the 1099 form somewhere safer. You will use it to file your income tax return. Depending on the type of 1099 you give, the income will be reported on your tax return in multiple places. For instance, income on a 1099-NEC will be reported on your Schedule C, profit or loss from a business. Furthermore, the earnings on a 1099-NIT will be reported on the first page of your tax return, form 1040. Once your return is fined, it is better to hold onto your records, including your 1099 forms, for a few years.
How Do You File A 1099-NEC Form?
If your company did hire an independent contractor to perform work and paid them $600 or more without using a payment processor, you would need to send them a 1099-NEC form.
Step 1: Request Form W-9
For every independent contractor or freelancer, request a W-9 form which includes important information you require to file a 1099-NEC such as an address, name, taxpayer identification number, and entity type.
Step 2: Submit Copy A To The IRS
There are generally two ways to file with the Internal Revenue Service. The first way is to get a paper copy of the 1099-NEC and file. Moreover, you will need to order a copy of the form from the IRS, and they will mail it to you with important instructions. You can use the IRS’s filing information returns system electronically if you prefer to file a copy online.
Step 3: Submit Copy To The Independent Contractor
The third step is to mail the Copy B to the freelancer or independent contractor. You can provide them a copy of the form electronically; however, you will need to get their consent to receive the form that way.
It is quite difficult to keep track of numerous tax forms and due dates, but Business Tax Benefits is here to make it easier for you. We will also help you know how to fill out a 1099 MISC form. Moreover, visit our website if you wish to check the complete guide to filing independent contractor taxes.