IRS Form 1099 is a doc that companies use to report the taxable funds they’ve made to distributors and impartial contractors for service, lease, and different objects. Freelancers and impartial contractors obtain this way for work they’ve carried out in the course of the 12 months and use it to report their earnings to the IRS.
What’s a 1099 kind?
A 1099 kind is a tax kind that companies use to report sure sorts of non-employee compensation – reminiscent of cost for skilled providers, royalties, curiosity, and awards or prizes – paid to different companies and to people who aren’t full-time workers of your organization.
Companies submit Kind 1099 each to payees and on to the IRS. Nevertheless, the shape solely reviews business-related compensation for intangibles like curiosity or providers to different corporations and people who find themselves not your organization’s W-2 workers. It’s not used to report funds for purchases like stock or workplace provides.
Sorts of 1099
When most individuals consider 1099s, what involves thoughts is Form 1099-MISC – the shape used to report miscellaneous funds for freelance and different contracted providers offered to corporations that do not make use of the employees full time. However there are lots of sorts of 1099, every reporting several types of cost.
Listed below are 5 of the commonest sorts of 1099:
- 1099-MISC: Companies file this way for every particular person they’ve paid in the course of the 12 months for miscellaneous providers.
- 1099-INT: Monetary establishments file this way to report the curiosity they paid account holders.
- 1099-DIV: Monetary establishments file this way to report dividend funds and funding distributions.
- 1099-LTC: Insurance coverage corporations and authorities businesses file this way to report long-term care and accelerated demise advantages paid out on life insurance coverage insurance policies.
- 1099-SA: Medical health insurance directors file this way to report distributions from well being financial savings accounts, Archer medical financial savings accounts or Medicare Benefit medical financial savings accounts.
The sorts of 1099s you full (or obtain, within the case of a payee) rely on the kind of group you could have and the kind of compensation you situation or obtain all year long.
Who’s required to fill out the 1099-MISC?
Any 1099s, together with the 1099-MISC, are crammed out by the enterprise that’s paying a person or enterprise for curiosity, providers, dividends, or different related types of compensation.
Should you’re a enterprise proprietor – even an unincorporated sole proprietor – and also you pay $600 or extra all year long to a enterprise or a person who is not a W-2 worker of what you are promoting, then you might be required to complete a 1099-MISC to report funds to that enterprise or particular person.
Sometimes, enterprise house owners, managers or accountants full the 1099. The shape is just for companies which can be actively engaged in commerce and make funds to non-employees totaling at the very least $600 in a calendar 12 months.
Kind 1099-MISC is most frequently used to report these kind of compensation:
- Fee to service-based companies (reminiscent of IT consultants)
- Fee to freelancers (like writers or graphic designers)
- Curiosity paid on loans
- Dividends paid to a enterprise’s shareholders
In circumstances like these, the place whole funds made to a different firm or particular person exceed $600 in a calendar 12 months – and the funds aren’t coated by different tax reporting varieties, like a W-2 – the corporate would want to arrange, ship and file 1099s (even when it is only a sole proprietorship). [Need help with your taxes? Check out our recommendations and reviews of the best tax software.]
When are 1099 varieties despatched or issued to firms?
1099s are used to report your funds to different corporations in addition to to people. Whether or not the recipient is a person, sole proprietorship, LLC, S-corp, or C-corp, any entity that what you are promoting pays greater than $600 in a 12 months for providers, lease, curiosity, awards, or different intangibles have to be despatched a 1099 that paperwork their compensation for the 12 months.
You do not have to file a 1099 when the one funds you issued to a different firm have been for the acquisition, transport, or storage of tangible items like stock.
When do you file the 1099 kind?
Should you aren’t engaged in enterprise – or in case your solely service-related bills do not exceed $600 in a 12 months – then you definately needn’t put together 1099s.
When what you are promoting does have payees who have to be despatched 1099s, you should put together and ship these varieties to them no later than Jan. 31 annually. You will need to then file the varieties with the IRS no later than Feb. 28 (or March 31 in the event you file electronically).
Should you obtain a Kind 1099 from a consumer or employer, you will want to incorporate the data from the shape in your regular tax return, filed on or earlier than April 15 (or Oct. 15 in the event you request an extension).
How one can file Kind 1099
If it’s a must to put together 1099s for numerous payees annually, you will observe 4 primary steps.
1. Determine eligible payees.
The very first thing to do is to overview your monetary data and determine these payees to whom you should ship 1099s. Search for folks and corporations you paid greater than $600 over the course of the 12 months for lease, providers, curiosity and dividends. Get rid of any full-time workers whose compensation will probably be reported on the W-2 you ship them for that 12 months.
2. Full 1099s.
As soon as you identify who wants 1099s from you, you will must download Form 1099 from the IRS and fill it out with the payee’s info. You must have used Form W-9 to get this info (like their tax ID quantity) whenever you employed them.
3. Ship 1099s.
After you full Kind 1099 for all related payees, ship the varieties to them no later than Jan. 31.
4. File 1099s with IRS.
After you ship the 1099s to payees to report their earnings, you could file the varieties with the IRS no later than Feb. 28 (March 31 in the event you file them electronically). Make sure you make a copy to your data.
What do freelancers and impartial contractors do with 1099s?
Should you’re the one receiving a 1099 – for example, in the event you’re an independent contractor rather than a W-2 employee – this way reviews the funds you’ve got acquired in the course of the 12 months, and you will use it to finish your tax returns. [Read related article: Tax-Filing Tips for Independent Contractors]
If you obtain a 1099 from a consumer or employer, you will must overview a number of necessary objects:
- Payer data: This line will present who paid you.
- Recipient TIN: Be sure that this quantity matches your Social Safety quantity (or your tax ID quantity in the event you’re integrated).
- Recipient title: This needs to be your title or that of your organization.
- Packing containers 1-17: These bins present the compensation paid to you and any taxes already withheld.
Then, all it’s a must to do is use the data in your 1099 to finish your tax returns and make a copy of the shape to your data.
What if I get 1099s and a W-2?
Some people might earn each a 1099 and a W-2 earnings in the identical 12 months. These are some circumstances the place that is frequent:
- You’ve got a full-time job and do freelance work on the aspect.
- You’re employed at a hospital and moonlight at a clinic.
- You’ve got a number of shoppers who use knowledgeable employer group (PEO) to pay their contractors.
Should you obtain each a 1099 and a W-2, you will use each varieties to arrange your earnings taxes. Enter any earnings reported in your W-2 straight in line 1 of your Form 1040. 1099 earnings, however, is normally reported on a Schedule C.
What if I do not get a 1099?
Should you work for an employer as an impartial contractor and do not obtain a 1099 in January of the 12 months following your work, you continue to should report your earnings.
The very first thing to do is contact the corporate to see if there was a clerical error – the corporate might have gotten your info improper and even despatched the shape to the improper deal with. In any case, ask the employer to resend the 1099 so you will get an correct accounting of your earnings from the corporate all year long.
Whether or not the corporate resends your 1099 or not, you continue to must report any compensation in your tax returns. If you cannot get an correct 1099, it’s possible you’ll must reconstruct your compensation information utilizing your individual financial institution data. The employer in all probability will not have withheld any taxes out of your funds, so it’s best to assume that any funds it issued to you have been taxable. Then, you will must deduct any eligible business expenses by yourself. [Read related article: Self-Employed? Everything You Need to Know About Taxes]