If you’ve received income from sources other than your employer, you’ll probably receive a 1099 form in the mailbox at the beginning of the year. But what is an IRS form 1099, and who does it apply to? There are several versions of the 1099, so whether you’re self-employed, invest in the stock market, or retired, you’re bound to come across it. We’ll discuss how to fill out a 1099 form below.
IRS form 1099 explained
The IRS 1099 form includes a series of documents used to report income that’s separate from your usual salary. It’s thought of as an “information return” by the IRS. The payer fills out the form and sends copies both to the payee and to the IRS. There are multiple versions of the 1099 forms, each applying to different types of income. For recipients, the 1099 is helpful for adding up income received throughout the tax year. It’s also useful to the IRS because it provides a record of multiple streams of income that wouldn’t appear on the usual W-2 form.
What does a 1099 look like?
You can find many examples of the 1099 form on the IRS website. For example, independent contractors usually receive a 1099-NEC or 1099-MISC form from clients. If you’re a small business owner, this is the version you’re most likely to issue.
What does a 1099 look like? It’s clearly marked with the form number at the top and bottom of the page. There are also spaces for basic information including:
Payer’s name and contact details
Recipient’s name and contact details
Taxpayer identification number
To gather this information, contractors typically fill out the IRS W-9 form before completing any work with a business. These details are used by the business to fulfill their 1099 requirements in January.
What is a 1099 form used for?
We’ve already mentioned the most common type of form above for small businesses and self-employed contractors, the 1099-NEC. When answering what is a 1099 form used for, you’ll see that there are dozens of types, all for different purposes.
Here are some additional forms of the 1099 apart from the Form 1099-NEC for contractors.
Interest and dividends: If you’ve earned dividends or other distributions from stock investments and mutual funds, you might receive a Form 1099-DIV. Periodic interest payments from investments are covered on the Form 1099-INT.
Government payments: If you’ve received unemployment income from the government, your state will issue Form 1099-G. Income tax refunds are also covered by this form
Canceled debt: If your debts are canceled for any reason, usually due to a debt settlement or other agreement, the IRS considers the portion of unpaid debt as taxable income. The creditor will send you a Form 1099-C to report this.
Retirement account: Some retirement funds are tax-free, but most of the time if you withdraw from your IRA you’ll need to report this as taxable income. The bank will send Form 1099-R to report your retirement withdrawals, as well as any other annuities or plans.
How to fill out a 1099 form
If you receive a 1099 form in the mail, it arrives already filled out. You can use this form as a reference when filing or amending your income taxes. However, businesses may need to fill out a 1099 form for submission to freelancers they’ve worked with throughout the year. If you’ve hired a contractor and paid them a minimum of $600 during the tax year, you’ll need to issue a 1099. If you paid less than $600, the contractor alone is responsible for reporting their own income.
Here’s how to fill out a 1099 form for your contractors:
Gather and fill in your contractor’s legal name, address, and TIN number. This can easily be gathered with a W-9 form.
Check your bookkeeping documents to confirm the amounts you have paid throughout the tax year and enter the total amount paid on Form 1099.
Submit Copy A to the IRS, and Copy B to the contractor.
You must complete and send all 1099 forms by January 31 each year.
The IRS 1099 form is simple and straightforward, both for businesses and contractors. Yet it’s an important document to be aware of, particularly when tax deadlines roll around.
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