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1099 forms, or Information Returns, are tax forms used to report income, other than the standard wages and tips found on W-2 forms, to the United States Internal Revenue Service. 1099 forms are to be filed by any businesses, organizations, corporations, estates, charities or individuals who perform financial transactions.
Most 1099 forms cover financial transactions occurring within a given year (January 1 to December 31), and are filed with the IRS at the beginning of the following year. 1099 forms can be filed either by mail or electronically, although businesses that issue more than 250 forms a year are required to file electronically or magnetically.
There are a variety of 1099 forms covering a vast array of financial transactions. The most commonly used 1099 form is the 1099-MISC, which is used by independent contractors, who are also referred to as freelancers. -
More and more businesses are turning to independent contractors or freelancers to work on a per-project basis. Regular employees have Social Security and Medicare taxes deducted from their paychecks by their employer. Companies who hire independent contractors are not required by law to make these deductions. The IRS requires that the independent contractors report their income and use the 1099 form to calculate the taxes they owe.
A business that employs an independent contractor is required to supply the contractor with a 1099 form at the end of the fiscal year if the contractor has earned more than $600. This form states the total amount of money the company paid the contractor. Businesses usually send a copy of this 1099 form to the IRS, but they are not required to do so by law; they are only required to keep a copy of the form in their files.
The independent contractor includes the 1099 form with his personal income-tax forms when he files at the beginning of the year. The taxes owed from that year are required to be paid at the time of filing. Depending on the amount of money the individual earns annually as an independent contractor, the IRS may require her to withhold a certain amount of money quarterly for estimated taxes. If this is the case, the IRS will keep the amount owed for taxes and refund any overpayment. -
There are several other types of 1099 tax forms that cover a variety of possible income sources. These include:
Proceeds from barter arrangements
Debt cancellation
Dividends from IRA accounts, retirement funds or annuities
Interest payments
Distribution of life-insurance payments
Gambling winnings
Rent received from rental properties
Money earned from real-estate sales
Payments from the government
Prize money
Individuals receiving money from these sources are obligated by law to report it to the IRS. Individuals who fail to file a 1099 form can be subject to stiff fines and penalties, which can be levied years after the actual transaction took place. Depending on the type of financial transaction, taxpayers must fill out the appropriate 1099 form and file it with the IRS.
Most of these 1099 forms are filed at the beginning of the next fiscal year, usually in February or March, or with the taxpayer's personal income-tax filings. A few 1099 forms need to be filed a few days following the transaction; usually, these are transactions involving large sums of money or foreign financial institutions. A full schedule outlining the various 1099 forms and when they need to be filed can be found on the IRS website.
