Understanding the 1099 Form

Navigating the complexities of taxes and financial documentation can be a daunting task, and 1099 forms may be the most cryptic of them all. These seemingly straightforward forms play a significant role in the world of tax reporting, but the myriad iterations can be a challenge to track and understand.

Let’s explore what a 1099 form is, common versions, who is expected to receive one, and how to simplify the process of filling it out and sending it.

This blog post is offered for general information purposes only. It does not constitute, and is not a substitute for, legal or tax advice.

What is a 1099 form?

A 1099 form is a document used by the Internal Revenue Service (IRS) to track various types of income that are not part of regular employment wages. In essence, it acts as a financial record that helps the IRS monitor income sources that haven't had taxes withheld throughout the year.

Types of 1099 forms

The type of 1099 form you send or receive depends on the specific type of payments made. The most common types of 1099 forms include:

Form 1099-NEC (Non-Employee Compensation) is used to report non-employee compensation paid to independent contractors, freelancers, or self-employed individuals. Payers are required to issue a Form 1099-NEC if they pay a recipient $600 or more during the tax year for services performed.

Form 1099-INT (Interest Income) is used to report interest income earned from various sources, such as bank accounts, certificates of deposit (CDs), savings accounts, or loans. A financial institution will issue Form 1099-INT if you earn at least $10 in interest income during the year.

Form 1099-DIV (Dividend Income) is used to report dividend income received from stocks, mutual funds, or other investments. It also includes capital gains distributions. You will receive a Form 1099-DIV if you receive at least $10 in dividend income during the tax year.

Form 1099-MISC (Miscellaneous Income) is a versatile form used to report various types of income that don't fit into other 1099 categories. This includes payments to independent contractors, rent, royalties, and other miscellaneous income. Payers issue Form 1099-MISC if they make payments of $10 or more in royalties or $600 or more for other services.

Form 1099-B (Broker and Barter Exchange Transactions) is used by brokers to report the sale of stocks, bonds, or other securities. It provides information on the proceeds from these transactions, which helps recipients calculate their capital gains and losses. There is no minimum threshold for Form 1099-B.

Form 1099-S (Proceeds from Real Estate Transactions) is used to report proceeds from the sale or exchange of real estate. It is typically provided by the person responsible for closing the transaction, such as a title company or real estate agent. Form 1099-S is issued when the gross proceeds from the real estate transaction are $600 or more.

Form 1099-G (Certain Government Payments) reports certain government payments, such as unemployment compensation, state tax refunds, and other government program payments. You will receive a Form 1099-G if you received at least $10 in government payments during the year.

Form 1099-K (Payment Card and Third-Party Network Transactions) is used to report payment card and third-party network transactions, which are typically related to online or electronic payment systems, like PayPal. Before December 23, 2022, payment processors issued Form 1099-K to sellers with 200 transactions and $20,000 in gross payments during the year.

However, after December 23, 2022, the threshold has been lowered to $600 in an effort to bring it in line with other 1099 forms. 

Who receives a 1099 form? 

Receiving a 1099 form depends on how you make your income. Individuals or entities that make payments to you are required to send a 1099 form to both you and the IRS if your income meets the specified threshold.

There are a few common types of people who receive 1099 forms:

• Independent contractors who provide services as independent contractors or freelancers and receive payments totaling $600 or more from a single client during the year.

• Freelancers, like graphic designers, consultants, or writers, who accumulate $600 or more in earnings from a single client or entity, are also issued a 1099-NEC.

• Those who earn interest, dividends, or other investment income will receive a 1099-INT, 1099-DIV, or similar forms, depending on the nature of the income.

• Landlords who receive $600 or more in rent during the year from a tenant will receive a 1099-MISC.

• Those who receive royalties, prizes, awards, and other sources of non-employment income may receive a 1099-MISC.

The rationale behind these forms is twofold: First, they help individuals and businesses that have made payments to you to report these expenses on their own tax returns. Second, 1099 forms serve as a checks-and-balances system, ensuring that taxpayers accurately report all sources of income, reducing the likelihood of underreporting.

If you fail to report income that should be included on your 1099 form, you might face penalties and interest charges, so accurate and timely reporting is important.

When do 1099 forms typically get sent?

Understanding the timeline for 1099 forms is essential for effective tax planning. The key dates to remember are as follows:

January 31: This is the deadline for businesses to send 1099 forms to recipients. If you were paid for work in the previous year, you should receive your copy of the form by this date.

February 28: If you are filing paper forms with the IRS, this is the deadline for submitting your 1099.

March 31: For electronic filers, this is the deadline to submit 1099 forms to the IRS.

It's important to adhere to these deadlines to ensure that you remain in compliance with tax regulations and avoid potential penalties.

What is a 1099 employee?

There is no such thing as a "1099 employee." Instead, the term "1099 employee" is often a misunderstanding or a misnomer. When people refer to a "1099 employee," they are typically talking about individuals who work as independent contractors, freelancers, or self-employed professionals and receive income reported on a Form 1099-NEC (Non-Employee Compensation) or Form 1099-MISC.

When someone is considered a "1099 worker," they are typically not an employee of the company or individual who hires them. Instead, they are independent contractors or self-employed individuals who provide services on a project basis. They are responsible for managing their own taxes, healthcare, and other benefits, as they are not eligible for the same benefits and protections that traditional employees receive.

Differences between employees and independent contractors

Employees have taxes withheld from their paychecks by their employers, while independent contractors are responsible for paying their own taxes.

Employees are typically entitled to certain benefits, such as healthcare, retirement plans, and paid time off, while independent contractors are not.

Employers have more control over employees in terms of work hours, tasks, and supervision, whereas independent contractors have more independence in how they complete their work.

Simplify the 1099 form process with Docusign templates

The IRS Form 1099 in all its many permutations can be a hassle for HR professionals to fill out and distribute. Docusign custom templates can make this process easier by preloading all the information that does not change from form to form. This saves time and reduces the administrative burden during tax season. 

Ready to get started? Sign up for a free trial to access Docusign templates today.