Why Is a 1099 Form Needed?

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Individuals must file 1099 forms as part of taxable income.
Individuals must file 1099 forms as part of taxable income. (Image: tax forms image by Chad McDermott from Fotolia.com)

Businesses report payments to recipients on informational tax forms to the Internal Revenue Service. The recipients who aren't employees receive 1099 forms as income statements. While common 1099 forms include the 1099-MISC, 1099-INT and 1099-G, other types of 1099 forms specify the type of transaction and benefit provided to the recipient. 1099 forms serve as proof of funds issued for tax reporting purposes, so recipients should report all 1099 forms received when calculating income taxes.

Contract Work

Independent contractors and service workers who are classified as non-employees receive a 1099-MISC form for payments, titled Miscellaneous Income form. According to the IRS, the 1099-MISC designates miscellaneous income or direct sales of $5,000 or more of consumer goods for resale. Items include consultant or performer's fees, rent or royalty payments, prizes, payments to fishing boats, substitute dividends and payments from brokers and payments to attorneys. At the beginning of the year, payers must file an informational IRS form that details each payment and issue a 1099 to each recipient for payments in the previous year.

Interest, Investments, Distributions and Benefits

Specific 1099 forms are required for reporting other types of payments or revenue. The 1099-INT, Interest Income form is from banks and financial institutions. The 1099-DIV, Dividends and Distributions, is for dividends and capital gains relating to stock. The 1099-R -- Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts -- is for payments from retirement plans. The 1099-B, Proceeds from Broker and Barter Exchange Transactions, is for securities, futures and commodities that are bartered -- not sold or purchased.

Other, lesser-known forms include the 1099-CAP, Changes in Corporate Control and Capital Structure, which is sent to shareholders for stock or property valued at $100 million or more. The 1099-LTC, Long-Term Care and Accelerated Death Benefits, is for payments from a life insurance contract or provider. The 1099-PATR, Taxable Distributions Received from Cooperatives, is issued to members and patrons of cooperatives for shared profits, credits or revenues. The 1099-Q, Payments from Qualified Education Programs, is for earnings from tuition programs and Education Savings Accounts. The 1099-SA -- Distribution from an HSA, Archer MSA or Medicare Advantage MSA -- is for Medical Savings Account distributions.

Mortgage and Property

Property and debt are also reported as income for recipients. Selling or exchanging real estate requires filing a 1099-S, Proceeds From Real Estate Transactions. Recipients receive the 1099-A, Acquisition or Abandonment of Secured Property form, from the donor for property that was given through abandonment. The 1099-C, Cancellation of Debt, is issued by financial institutions and lenders forgiving past debt.

State and Federal Government

All payments from the government are reported as income, whether it's applied to future tax returns or used for paying penalties. These government payments include unemployment compensation and tax refunds and are reported on 1099-G, Certain Government Payments.

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