Form 1099 is a group of federal income tax information documents similar to a W2 that employees receive at the end of the year to prepare their income tax return, only it is for independent contractors. Independent contractors are providing services to lots of different businesses, and they need to get 1099s from all of those different companies.
This way, taxpayers can put it all together and report all the proceeds and earnings other than wages, salaries, and tips to the IRS. The IRS is actually using it just to make sure that the service providers are reporting their income.
A business/payee, as the one who is hiring somebody to provide these services, have an obligation to report the contractor’s earnings to the IRS. So, who gets 1099? Here is a checklist of parameters:
- Are they service providers for your business? (landlord, janitor, graphic design individual, attorney, etc.)?
- Have you paid them more than $600 this year?
- Are they incorporated? If their company name ends with Corporation, Corp. or Inc., then exclude them from your list. Are they a self-proprietor? If yes, include them on your 1099 form list.
- Did you pay them through cash, check, ACH, wire, etc. (i.e., not using a payment processor)? If yes, send them the 1099 form.
The information a business would need to get from independent contractors includes the name of the person, their business name, SSN or EIN, address and email address, and what type of business they are. The business should ideally document this before it pays the contractor.
Types of 1099 Forms
There are over twenty different types of 1099 forms. Here, we would like to review the most frequently used ones.
- Form 1099-MISC – for independent contractors and self-employed individuals, such as freelance writers, gardener, consultants, accountants and attorneys who you paid $600 or more during the reporting year;
- Form 1099-DIV – for reporting dividends and other distributions stock income;
- Form 1099-INT – for reporting interest payments received from banks or other financial institutions;
- Form 1099-R – for reporting retirement plan, annuities, IRAs, etc. account distributions. If required, you need to file all copies of 1099-R forms with tax returns;
- Form 1099-S – for lenders and real estate agents to report proceeds from real estate transactions;
- Form 1099-C – for reporting cancelation of debt priorly negotiated with the lender as taxable income;
- Form 1099-G – for reporting a receival of unemployment compensation or an overpayment of state tax;
- Form 1099-Q – for reporting payments from qualified education programs (used a 529 plan or Coverdell ESA for education expenses);
- Form 1099-B – for investors in stocks, bonds and other types of securities to report property and securities transactions handled by a broker;
- Form 1099-SA – for reporting distributions from an HSA;
- Form SSA-1099 – for reporting any Social Security benefits received by an individual.