Every company must use information returns to report any financial transactions. If you’re an operating business, health insurance provider, a financial institution, or university, you’re required to file these information returns – such as a 1099 tax form or W-2 form. Completing and submitting these forms lets agencies like the IRS or Social Security Administration (SSA) monitor a person’s tax liability.
Whether you’re familiar with both types of tax forms, one type, or neither, we’re going to walk you through 1099 tax forms, specifically – what they are, who they’re for, and the many variations.
What exactly is a 1099 tax form?
As we mentioned, 1099 forms are considered information returns. In this case, the IRS uses these to keep track of the income individuals are making outside of their regular salary (cue side hustles outside of your day job). Put simply, “a 1099 tax form is a record that an entity or person (not your employer) gave or paid you money”, according to Nerdwallet.
Types of form 1099
Are you with us so far?
Here comes the fun part: there are several different types of 1099 forms – 22, to be exact. And each type is used to report different transactions or payments. The current 1099 series includes:
- 1099-A, Acquisition or Abandonment of Secured Property
- 1099-B, Proceeds from Broker and Barter Exchange Transactions
- 1099-C, Cancellation of Debt
- 1099-CAP, Changes in Corporate Control and Capital Structure
- 1099-DIV, Dividends and Distributions
- 1099-G, Certain Government Payments
- 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments
- 1099-INT, Interest Income
- 1099-K, Payment Card and Third Party Network Transactions
- 1099-LTC, Long-Term Care and Accelerated Death Benefits
- 1099-MISC, Miscellaneous Income
- 1099-NEC, Nonemployee Compensation
- 1099-OID, Original Issue Discount
- 1099-PATR, Taxable Distributions Received from Cooperatives
- 1099-Q, Payments from Qualified Education Programs
- 1099-R, Distributions from Pensions, Annuities, Retirements, or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
- 1099-S, Proceeds from Real Estate Transactions
- 1099-SA, Distributions from an HSA, Archer MSA, or Medicare Advantage MSA
- 1099-SB, Seller’s Investment in Life Insurance Contract
- SSA-1099, Social Security Benefit Statement
- RRB-1099, Payments by the Railroad Retirement Board
- RRB-1099-R, Pension and Annuity Income by the Railroad Retirement Board
Overwhelmed? We don’t blame you. Fortunately, we won’t dive into all of them, but we just wanted to give you an idea of how each scenario lends itself to a different information return. We pulled these current 1099 forms directly from the IRS website, so feel free to check it out for a more thorough read.
For now, let’s explore a few 1099 forms that regular taxpayers, such as small business owners or self-employed individuals, are likely to come across – by means of receiving or filing:
This form is used by banks or other financial entities to report on dividends and other distributions to taxpayers and the IRS. For example, if you own stock or other securities and receive just over $10 in distributions (like dividends or capital gain distributions), then you must file this form.
As stated, this form covers interest income – earned and paid over the period of a year. All payers of interest income must issue this form to investors by the end of the year. The form contains a breakdown of all types of interest income and corresponding expenses.
Check out instructions for filling out Form 1099-INT.
Since we live in a world of self-employment, this form happens to be one of the most common. Let’s say you are a freelancer. You would receive a 1099-MISC tax form from a company/client who paid you over $600 during the year. Essentially, the 1099-MISC form acts as your own version of a W-2 form.
On the other end, if you are a small business owner and work alongside freelancers, you can both receive and submit this form.
Check out instructions for filling out Form 1099-MISC.
If you’ve entered the investing world, you will receive a 1099-B tax form from your broker to report the gains and losses from your investments over the course of a year. Then, you simply attach this to your tax return.
This form applies to smaller businesses that accept payment from customers via credit card or a third-payment processor (think PayPal or Google Checkout). Yet, the form should only be filed if your business has made at least 200 transactions and $20,000 in sales during the given year. In summary, this form ensures that businesses are paying the appropriate tax amount on their sales.
An additional thing to note if you’re a regular in the cryptocurrency space: when comparing 1099-K with 1099-B tax forms, there’s a bit of a blurry line when it comes to cryptocurrency exchanges. Some taxpayers will receive a 1099-K form, while others will receive a 1099-B form. So, what’s the difference? Read here for the specifics on such a niche industry.
Who is responsible for filing 1099 forms?
Taxes can be downright confusing; who’s responsible for filing what? Which forms are you supposed to submit? The list goes on. When all is said and done, here’s what you need to know about filing 1099 tax forms:
- 1099 forms are used to document any income – paid or received – excluded from traditional employment.
- If you paid someone over $600 for something other than employment or sales throughout the year, you may have to file and submit a 1099 form. (You’re responsible for filing any 1099 forms you receive, as well.)
- If your small business works with shareholders who receive dividends or distributions over the course of a year, you are responsible for filing 1099-DIV for each individual shareholder.
You can find more on how to submit these forms here.
Simple enough? We hope this was useful, digestible information. While there are many forms to go over, the principle of a 1099 tax form is easier than tax collectors make it out to be.