IRS Form 1099 is used to list various types of income that you receive apart from your salary or wages throughout the financial year. It is mandatory for every tax payer to report their extra income to IRS.
Form 1099 is used to list the payments that you receive through the interests from bank, dividends from stock investments or payment for your freelance work. Note that, everytime you receive a form, IRS also receives a copy of it. Failing to report the income listed on Form 1099, might flag for an audit.
In order to avoid taxpayers from underreporting income or incorrect income information, IRS has implemented a statergic approach which is termed as “Information Return Program”. This information return is not similar to income tax return instead it can provide information about an individual’s financial transactions.
Most information returns check for the income which are not categorized under salary or wages; and report it to IRS. An employer who pays you must also file the form with the IRS and send you the copy of it.
In turn, IRS system checks the information returns received against the income reported on your return automatically. When IRS finds the reported income is less than the income in the information return then IRS sends you a letter demanding you to pay extra tax or penalties.
Series of 1099 Forms
IRS has different types of information return forms and each form is used to report different types of transactions or payments. Most information return forms comes under form 1099 series and check out the various types of Form 1099 below:
- 1099-A, Acquisition or Abandonment of Secured Property
- 1099-B, Proceeds From Broker and Barter Exchange Transactions
- 1099-C, Cancellation of Debt
- 1099-CAP, Changes in Corporate Control and Capital Structure
- 1099-DIV, Dividends and Distributions
- 1099-G, Certain Government Payments
- 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments
- 1099-INT, Interest Income
- 1099-K, Merchant Card and Third Party Network Payments
- 1099-LTC, Long-Term Care and Accelerated Death Benefits
- 1099-MISC, Miscellaneous Income
- 1099-OID, Original Issue Discount
- 1099-PATR, Taxable Distributions Received From Cooperatives
- 1099-Q, Payments From Qualified Education Programs (Under Sections 529 and 530)
- 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
- 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MMSMSA
Among the above list of 1099 forms, as a taxpayer you just need to be concerned more about receiving few of these different forms which includes:
The employers are required to report Form 1099-MISC, if they pay any individual about $600 or more during the financial year. If the employee receives an income less than $600, in such case also the employee must report their earnings on their taxes.
This form 1099-INT is used to report the income that you receive through bank. For instance, the interest amount you receive from your savings account at your bank.
In such case, your interest amount also must be taxed as a regular income. You will pay the same rate for the interest you receive as you pay for your regular income. Here financial institutions file this form, when they pay an individual $10 or more as interest during the financial year.
This form 1099-K is filed when you own a business and have at least 200 transactions with at least $20,000 in sales during the year. And when the pay is processed by any third party payment options like Paypal or other payment gateways.
This form 1099 DIV is used to report the dividends and distributions that you receive from any investment during the year. When you are a stockholder and receive dividends as a pay then this will be considered as form of income. And the pay you get from stock is summarized in this form.
As a holder of stock or other securities and you receive more than $10 in distributions like capital gain distributions, dividends or non taxable distributions which were paid on stock and liquidation distributions are expected to file this form.
Remember dividends must be taxed differently from income. And this form clearly differentiates the payments that are to be taxed at a more favorable rate.
This form 1099 C is reported when there is cancellation of debt. This situation occurs when the lender agrees to clear a portion of your debt that you owe them.
Note that, the canceled debt is also considered as an income and income tax must be paid. Some borrowers are not aware of this scenario and fails to return their taxes.
This form 1099 R is received when you get a distribution of about $10 from your retirement plan such as IRS, Roth IRA, 401 (k) plan and annuities.
When you change over your retirement plan into another tax advantage account,in such case you will be issued a 1099 R. If you have Roth IRA then you are not required to pay taxes on your retirement plan and the withdrawal amount are considered as a normal income.
When you have paid the taxes up front to the IRS, then you must attach form 1099 R with your tax return so that IRS confirms that you have paid the share previously.
This form 1099 S is used when you sell a house or a property. When you are selling a property, you can exclude up to $250,000 in the gains when you file as single tax filer, and up to $500,000 in the gains when you file as joint tax filer. This form also specifies the amount that you are required to pay to IRS.
This form 1099 B is filed by brokers or mutual fund companies when you sell the stock. This form contains details of the amount, date of sale and cost basis information.
This form 1099 G is used to report the agricultural payments, unemployment compensation, state or local income tax refunds and taxable grants.
Having discussed about the most frequent 1099 forms that you mostly encounter, make sure that you take appropriate steps when you receive them. If you have higher amount that has to be paid, resolve them else it may trouble you at tax time.
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