A 1099 form is an information return that is filed with the Internal Revenue Service, IRS, that reports income earned from various ventures like; self-employment earnings, interests and dividends, payments from the government, and many more. There are a number of different types of 1099 forms and each one reports the different types of income you may receive throughout the year besides the salary reported on your W-2. Here are a few of the different types of income generally reported on a 1099 form.
Independent Contractor Income
If you are working for a small business or employer as a freelancer or independent contractor you will receive a form 1099-misc from your employer if they pay you $600 or more during that tax year. If you work as a salaried employee then you will need to fill out a W-2, not 1099. If you are paid less than $600 within that year your employer or client will not be required to send you a 1099 but you will be required to fill out one of your own simply reporting your income as an independent contractor. Once you’ve prepared your return and submitted it the IRS will verify the information you’ve sent and determined what income tax needs to be paid on it.
Interest and Dividends Income
If you own a portfolio of stock investments or mutual funds then you will receive a form 1099-Div so that you can report the distributions and dividends you received during that year. This form is for payments you’ve received directly from the corporation’s earnings and not the payments you receive from selling stock. If you have an account where you receive periodic interest payments then form 1099 interest will have to be filled out and you will have to pay taxes on those interest payments and you will receive that information on 1099-Int forms, which will most likely receive from any banks that you have a savings account with that earns interest.
Government agencies most commonly use Form 1099-G to report any state income tax refunds or unemployment compensation you should receive during that tax year. It is the federal and state governments’ responsibility to report any income it pays out to taxpayers and that is what form 1099-G is used for.
Withdrawals from a Retirement Account
When you take money out of your traditional IRA, most of the time it is taxable. If it is you will receive a 1099-R that lists the total withdrawals made the previous tax year as well as any distributions you received from pension plans, annuities or profit-sharing plans. Most of the time the 1099-R will show the amount of the distributions taxed as well as the amount of federal tax that was withheld.
There are various types of 1099 forms and all are used for a specific purpose, to report income that is not the typical income earned through wages or salary. There are tons of ways to earn money today and 1099 forms help the IRS keep track of everything that is going on without over complicating it.