Glossary of Human Resources Management and Employee Benefit Terms
A 1099 form is a tax form used to report income paid to you from a person or entity that is not your employer. When you are paid money that is not considered salary, wages, tips, and/or is not withheld, the person paying is required to report the details to the IRS. Therefore, the IRS will know if there is a discrepancy between reported income on tax returns and the income their records show a person received.
1099 forms are used to list various types of income received outside an employee’s regular pay, such as interest from a bank, investment dividends, or compensation for freelance work. There are more than a dozen different 1099 forms, but most taxpayers only need to worry about a few kinds.
Some of the most common 1099s are:
1099-DIV - This form is used if a person received over $10 in distributions from stock or other securities. It includes dividends, capital gains distributions, and nontaxable distributions.
1099-INT - This form is sent by a financial institution if an individual has earned more than $10 in interest in a year.
1099-B - This form reports income from the sale of stock.
1099-C - This form is required if a credit card issuer or other lender settles debt for less than what was owed. The amount of debt forgiven is reported on a 1099-C and is likely taxable income.
1099-G - This form reports state and local income tax refunds, unemployment compensation, agricultural payments, and taxable grants.
1099-R - This form is used to report distributions from a retirement plan, like an IRA, Roth IRA, pension, annuity, or 401(k). If a loan was taken out from a retirement plan, that may count as a distribution and be reported on this form as well.
1099-SA - This form identifies distributions taken from a health savings account (HSA), medical savings account, or Medicare Advantage.
1099-MISC - This form is for any professional services rendered outside an employer that earned $600 or more in a year. The 1099-MISC form is also a catch-all for income that doesn’t fit into other 1099 categories, like royalties, prizes, or awards.
If a person works for a company, they will receive a W-2 summarizing earnings for the year. Anyone who receives income outside of those earnings should receive a 1099 form. Because there is a variety of 1099s, it’s not uncommon for tax filers to get more than one.
Receiving a 1099 does not mean taxes are owed on the reported income. Some or all of it might be sheltered or not taxed (like HSA distributions used for qualified health expenses), or there may be deductions that offset that income. However, 1099 income will still need to be reported on different places on an income tax return.
Only those taxpayers who receive income other than wages, salaries, or tips reported on a W-2 will get a 1099 form. The 1099 form sent will depend on the type of income.
If you paid another person or unincorporated business more than $600 total in a year for professional services, you may need to provide a 1099-MISC form. (See 2020 IRS instructions for more information.) 1099 forms should be sent by January 31 of the year following the tax year. In addition, you will need to send a form 1096 to the IRS. The penalty for failure to file a 1099 form can be as much as 50% of the amount paid for services.
If you need to issue a 1099 form, you cannot print them yourself. There are four primary ways to get 1099 forms:
You can order them from the IRS.
Get physical, blank forms from an office supply store.
Use a third-party online service to create 1099s for you.
Use a third-party tax prep software for businesses.
Beginning in the 2020 tax year, nonemployee compensation (NEC) payments will no longer be reported on a form 1099-MISC. Instead, that income will use the form 1099-NEC. See the IRS website for more information.