Let's talk about 1099s.
First of all, what are they?
What are 1099s? Well, 1099 forms are federal income tax information forms from businesses and other institutions to document certain financial transactions conducted throughout a tax year. These forms are filed with the IRS, and with some state tax departments if required. Individual tax payers also receive copies of 1099s to help them total their income from various sources and to help them calculate their taxes correctly.
While there are more than 20 different versions of the 1099 form, the most common one is the 1099-MISC. This form specifically reports all earnings and proceeds other than wages, salaries and tips, which are reported on the federal W-2 form.
Those that are receiving a 1099, are expected to hold onto them and file copies of them with their personal income tax returns every April 15th, or every quarter, whichever applies.
Tell me more about the 1099-MISC.
The 1099-MISC is given to any freelancer, independent contractor, or self-employed person, so that they can keep track of their compensation over the course of a tax year. Under federal law, a business only must send out a 1099-MISC if that person has earned more than $600 in a calendar year.
If you are receiving a 1099, you are not considered an employee, and therefore, that business sending the 1099 to you is not liable for paying your share of state or federal income taxes, PR for deducting any payments to the Social Security and Medicare Trust Funds.
Recipients are from a large variety of professions, including:
And any other profession that is generally compensated on a per-job basis.
Payment types to these recipients include fees, commissions, awards, prizes, along with compensation for repairs, maintenance, services rendered etc.
What other types of 1099s are there?
There are also the following types of 1099s:
Form 1099-INT- This reports interest income
Form 1099- G- This lists government payments, like unemployment benefits and tax refunds.
Form 1099-R- This documents payments from annuities, pensions, retirement plans and profit sharing plans.
Form 1099-C- This is used whenever a taxpayer writes off debts exceeding $600.00.
Form 1099- Q- This documents payments from qualified education programs.
Form SSA-1099- This records Social Security payments.
Form 1099-S- Reports proceeds from rental income and other real estate related investments and transactions.
Form 1099-B- These report proceeds from broker and barter exchanges.
Anything else I should know?
In general, payers are required to submit their 1099s to their payees by January 31 of each year, with information forwarded to the IRS soon after. The penalties will be assessed on those who file incorrect returns, don’t remit correct payee statements in a timely manner, and to those who file fraudulently.
The IRS matches a payee’s tax returns with the received 1099s to find any unreported or under-reported income on which self-employment tax payment is required. Any discrepancy will often initiate a tax audit.
If you wish to file paper 1099s, you must order the forms from the IRS, you CANNOT download them off the internet. Also order Form 1096, which is the cover page used with submitting information returns to the IRS.
Do any vendors NOT have to receive a 1099?
Good question! Here is a list of who does NOT have to receive a 1099:
-Corporations (except attorneys)
-Entities you purchase tangible goods from
-Entities you purchased less than $600 from (except royalties; the limit there is $10)
-Where you would normally have to send a 1099, but you made payment by a credit card or debit card
-Any vendors other than these, will have to receive a Form 1099- MISC.
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