Explanation of the 1099 Tax Form

Many taxpayers use Form 1099 to complete their annual tax return.

When you're preparing your taxes, you need paperwork to tell you exactly how much money you've earned throughout the year. Much of that amount comes from Form W-2, which summarizes your wages, tips and salaries. You must, however, pay taxes on other sources of income as well. These include interest, investments, rent and royalties. Such income is reported on Form 1099.

Significance

Millions of taxpayers need 1099 forms to file their annual tax return. The forms indicate the amount of money a person earned during the tax year from a source of income other than wages, salaries and tips. Common recipients of 1099 forms include contractors, freelance employees, retirees, investors and people who maintain interest-bearing accounts.

Types

Taxpayers may receive one or multiple 1099 forms every year, each from a specific source of income. For example, dividends from mutual funds are included on a Form 1099-DIV. Form 1099-MISC includes income from rent, royalties and contractor pay. Retirement income is reported on Form 1099-R.

Contents

Form 1099 sometimes contains information aside from the amount of income a person earned from a particular source. For example, Form 1099-B, which reports income from the sale of securities, includes the date of the sale and a description of the asset. Form 1099-INT, which reports interest income, includes the amount of penalties a person paid for early withdrawal of the funds.

Format

Form 1099 is divided into boxes. Information from those boxes may go directly onto the tax return; when a person pays a penalty for early withdrawal of a certificate of deposit, for example, he or she places that on line 30 of Form 1040--adjustment of income.

Other information goes onto a schedule. For example, if a person receives real estate rent payments, he or she reports that on Schedule E. Income from rental of machinery is reported on Schedule C.

Time Frame

Businesses must provide recipients with 1099 forms by Feb. 1 so as to allow the recipient time to prepare her annual tax return. Form 1099-B, Form 1099-S and certain copies of form 1099-MISC are due Feb. 15.

References

• H&R Block: Tax Tips And Calculators
• Pappas Tax: W-2 And 1099 Pitfalls, Tips and Deadlines