What Is an IRS 1099?
Generally, 1099 forms, in various versions, are used to report income from non-wage sources, such as dividends, royalties, pension distributions and contract work.
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Types
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There are a number of versions of the Internal Revenue Service's 1099 form. Each one is used to report income from a specific source. The most common types are the 1099-DIV, the 1099 INT and the 1099-MISC. The 1099-DIV reports dividends you received, typically through stock ownership in a company. The 1099-INT reports interest you received on investments like bank accounts, CDs and bonds. A 1099-MISC, as the name implies, reports a variety of incomes like rents, royalties and prizes and awards not paid for services, like game show winnings. The 1099 MISC is also issued to private contractors, that is, individuals who do work for a company but are not in the company's employ, for example, a consultant.
Function
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If an individual is employed by a company, the employer is responsible for withholding taxes. The employee's gross income and withholding is then reported on a W-2. Generally, a 1099 is issued when the individual is responsible for reporting income and paying taxes on it himself. W-2 forms are attached to the individual's tax filing. The individual does not submit 1099s but simply reports the income on tax filings and keeps the form for his records.
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Form 1096
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A business or firm that issues 1099s will also submit form 1096, or Annual Summary and Transmittal of US Information Returns, to the IRS. This is a way of informing them of amounts that have been paid and should be reported on the individual's annual tax filing.
A New 1099 Form
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The 1099-K is a new 1099 that will be required beginning in the 2011 tax year. According to CNNMoney.com, "financial firms that process credit or debit card payments will be required to send their clients, and the IRS, an annual form documenting the year's transactions."
Required Reporting
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The IRS generally does not require that a 1099 form be issued for amounts under $10 for income like royalties, rents, dividends and interest and under $600 for prizes, awards, medical and health care payments and payments to contractors. In the case of the new 1099-K form, it will only be required when a merchant makes over 200 payments totaling more than $20,000, which removes the burden of reporting for most casual merchants.
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