If you are an independent contractor or a freelance worker, you are very likely to receive Form 1099. There are several different types of Form 1099. So what is Form 1099? What does it do and who gets it.
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What Is a Form 1099?
Many people in America have multiple sources of income. This source of income may be non-wage income. You may also have other income, such as government payments, interest income, dividends, health insurance advance payments, capital gains, and pension plan distributions that you have to pay tax.
Form 1099 is a document that lets you report if you have received different types of payments and income in a year, other than salary. With IRS Form 1099, you record and report these different types of income.
Usually, payers, employers, or financial institutions complete Form 1099 and send a copy to individual taxpayers. They also send another copy to the IRS. For example, a financial institution or bank might cancel your debt. He can send you Form 1099-C to indicate and report the amount of this canceled debt. The IRS considers debt cancellation as taxable income even if you do not receive any payments. For example, if you are an independent contractor or a freelancer, you will receive this Form-1099 from your customers.
What Is The Information In Form 1099?
Usually, if you are completing form 1099, you must enter the following information.
- Legal name and address of the taxpayer
- Legal name and address of the issuer of the form
- The total amount paid during a tax year
- Tax identification numbers
To obtain the taxpayer’s tax identification number, you can request Form W-9.
Who Needs Form 1099?
If you are an employer, you can fill in many different forms within a tax year. If you are an employer and have paid $ 600 or more for an independent contractor or freelancer, you must complete Form 1099. You must send this form to the independent contractor by 31 January of the following year after the end of a tax year.
If you are an independent contractor, you are likely to receive Form 1099 from your employer. But if you are employed by a company as an employee, you will get W-2. The distinction between working as an employee or as an independent contractor is important here. Because the form you will receive will change accordingly. The IRS requires employees to report their salary information via W-2. It requires that non-employees, independent contractors or freelancers, submit Form 1099 by their client or employer.
Who are independent contractors? It is also important to make this distinction. While you must be classified as an independent contractor, you may be subject to fines by the IRS if you are classified as an employee. For this, it is necessary to examine the employment relationship between the worker and the job.
- Independent contractors provide their services independently.
- They decide for themselves how and when the work will be done.
- More than one customer may be the place they work in.
- Does not benefit from the company. (insurance)
As of 2020, the IRS has regulated Form 1099-NEC, a separate form type for independent contractors and freelancers. For example, if you are an independent contractor, if your employer has paid you over $ 600, this form fills in 1099-NEC and That’s why you probably get this form until 31 January of the next tax year in which the income was generated. We will discuss this in detail below when we talk about Form 1099 types.
For example, if your debt is canceled and its amount is $ 600 and above that amount will be taken by the IRS as income and you can receive Form-C. In short, IRS Form 1099 is used to report your income during a tax year. There are different types of Form 1099 received based on income generated. We will explain them below. In short, if you are earning non-salary income, you can receive different types of Form 1099.
When To Send Form 1099?
Form issuers must send the form to the recipient by 31 January following the end of a tax year in which income occurs. Usually, “A” copy of the Form is sent to the IRS, and the “B” copy is sent to the recipient. They should keep the “C” copies. Sometimes you may need to send a copy to the State Tax Office. You can send it electronically with the IRS FIRE system. Or you can send it by postal service.
What Are The Types Of Form 1099?
As of 2020, there are many different types of Form 1099. We’ll talk about them, starting with the most common ones.
Form 1099- INT
You can receive a Form 1099-INT if you earned interest income of $ 10 or more or, for certain occasions, $ 600 or more from a bank or brokerage house with an interest income payer.
Form 1099- DIV
For dividends and distributions of 10$ or more paid by mutual fund companies, you will receive Form 1099-DIV. In the case of liquidation, the minimum amount is 600$. Dividends and distributions received in a tax year are notified to you with this Form 1099-C.
Form 1099- NEC
- If you are an independent contractor or self-employed and received a payment of $ 600 or more from the customer in a tax year, you will receive a Form-NEC.
- Likewise, you will submit this form if you are an employer and have paid over $ 600 to an independent contractor or freelancer. You will send it to both the IRS and the independent contractor.
- **Until 2020, Form-MISC was being received.
As we mentioned above, if you are in employee status, you will receive Form W-2. W-2 is a form filled out by employers reporting salary and wage information of employees. However, if you are a freelance worker or an independent contractor, you will receive Form 1099.
The payer fills out Form 1099-NEC, sends copy A to the IRS and copy B to the independent contractor or self-employed. This is for informational purposes only. Keep copy C in your records. Do not use this form to report wages and salaries to your employees. You will edit the W-2 form for your employees.
You can find Form 1099-NEC on the official website of the IRS.
The payer is required to submit Form 1099 to the recipient, a taxpayer, by 31 January of the next tax year in which the income occurred. For example, you are an employer and paid an independent contractor $ 600 in 2020. You must submit Form 1099 to the independent contractor by the end of January 31, 2021.
If you are an independent contractor or self-employed and receive less than $ 600 in a tax year, you will not receive a Form 1099, but you must still report your income.
As we mentioned above in the What information is included in the Form 1099 section, when filling out Form 1099, the legal name, address, and tax identification number information of the taxpayer are required.
If you are an independent contractor, you will need to provide your customer with your tax identification number for your customer to complete Form 1099. The simplest way to provide this information is by submitting the IRS Form W-9. It is an informational form.
If you are paying, want the independent contractor for a Form W-9 before arranges Form 1099-NEC. You can find the information you need here.
What Is Form W-9?
We’d better talk briefly about what Form W-9 is. W-9 Form is the information form required to send your taxpayer tax identification number to someone, an organization, a customer, a bank.
We can say that W-9 is an IRS information form. Form W-9 must be submitted before Form 1099 is issued.
For example, who must complete and submit the W-9 form?
- If you are an independent contractor or self-employed and your client has paid you more than $ 600 in a tax year, before sending you Form 1099-NEC, you must submit Form W-9 to your client to access the required information.
- If your debt to a bank or financial institution is canceled, they will send you a Form 1099-C. Before Form 1099-C can be issued, you must send them a Form W-9 so they can access the information they need.
In short, if you are going to issue a Form-NEC, there is the information you need before you edit the form. To access this information, ask the independent contractor or freelancer for form W-9.
Form 1099- C
A lender can delete or reduce the amount of your outstanding debt. So the lender can cancel your debt. In such cases, your income will not increase directly. However, according to the IRS, this increases your taxable income. The canceled amount is taxable income. This amount must be at least $ 600. The canceler must send you Form 1099-C to report this. The person or organization that cancels must send it to the recipient by 31 January at the latest.
Form 1099- G
You can get Form 1099-G if you have received a government payment from the government agency. Examples of government payments are tax returns and unemployment compensation.
Form 1099- MISC
If individuals or organizations make various income payments to you, they can send Form 1099-MISC to report this.
The minimum amount for which the form will be issued
- 10 $ for royalties
- $ 600 for various compensation payments (example: Awards, rent, income payments not included in other forms)
So as Payer, if you make the following payments of at least $ 600, you must issue Form 1099-MISC.
- Payment to a lawyer
- Prize
- Other income payments
- Rent
- Crop insurance income.
- Any fishing boat will come.
- Medical and healthcare payments.
- Cash payments for the fishing trade.
Form 1099- R
You can get Form 1099-R if you’ve received a distribution from pension plans, IRAs (Individual retirement account), pension, salary, or insurance contracts. An example would be if you withdraw money from a retirement account.
Form 1099- A
It is regulated by the lender in case You Acquire or Leave the Secured Property.
Form 1099- B
Used to report income from broker and barter exchange. The broker or the barter performer arranges Form 1099-B.
Form 1099- CAP
You can get this form if you own shares in a company and there have been changes in the capital structure of the company. The company arranges the form.
Form 1099- Q
It is a form that notifies the Payments you receive from Qualified Education Programs. The manager or bank managing the Coverdell education savings account or 529 plan arranges the form.
Form 1099- S
It is a form to report proceeds from real estate transactions of $ 600 and above.
Form 1099- SA
You can get this form if you have received Distributions from HSA, Archer MSA, or Medicare Advantage MSA.
Form 1099- LTC
You can get Form 1099-LTC if you have received long-term maintenance benefits from the insurance company. The insurance company issues the form.
Form 1099- OID
You can get this form if you have received $ 10 or more original issue discount.
Form 1099- PATR
You can get this form if you have received taxable distributions from cooperatives of $ 10 or more. Cooperatives arrange the form.
Form 1099- K
You can get Form 1099-K if you have received $ 20,000 or more, commercial card and third-party network payments.
Form 1099- SSA
The form is regulated by the Social Security Administration. The form reports social security payments.
Form 1099- RRB
The form is regulated by the railway pension agency. The form reports payments made by the Railway Pension Board.
Bottom Line
As a result, it is a form used to report your non-wage income to the IRS. Those who edit the forms listed above fill out the forms, send a copy to the IRS and the other copy to you. The last date they will send you the form will usually be 31 January. I want to repeat an important issue, If you are an independent contractor and were paid under $ 600, you will not receive Form 1099-NEC. However, you must report this income on your tax return. As a form payee, you do not have to submit the form separately to the IRS. However, it is useful to keep the form.
As an employer, it is important to distinguish between an employee and an independent contractor correctly. You must send W-2 to employees and Form 1099 to independent contractors.
*This document should not be assumed as a legal advice. These informations may always change, please contact with our team of attorneys to confirm.
References
https://www.irs.gov/pub/irs-pdf/f1099nec.pdf
https://www.irs.gov/pub/irs-pdf/fw9.pdf
