The Complete Guide to Your 1099 Forms

Tax season is very daunting, and surely no one wants to get any run-ins with the law. If you’re planning not to report the extra money you make photoshopping people’s wedding pictures or any sideline business, think again. The 1099 form makes sure that all earned incomes are declared. First, read on to make sure that you understand the 1099 forms that will arrive in your mailbox. Second, learn how much taxes you would probably pay on your 1099 income. Lastly, read this complete guide which will help you sort out all your tax liabilities before the April 15 deadline.

What is a 1099 employee?

First, there is no 1099 employee.
What an employer may term as a 1099 employee is what the IRS considers as an independent contractor. What you receive and submit is a 1099 form reporting all your income.

What is a 1099 form?

A 1099 form is an information report on all other sources of income. It’s similar to a W-2, which regular employees receive indicating their wages, salaries, and tax withholdings. Take note that it isn’t exactly a tax report. It is simply a form that provides the Internal Revenue System with information regarding all your other financial transactions. Also, these transactions include taxable income amounts other than regular salaries and wages (or are not withheld).

You should get your 1099 copy by January 31

Moreover, this is one way the IRS prevents taxpayers from evading legal taxes and underreporting on taxes they owe. Now, whoever paid the amounts, whether an individual or a company, is responsible for filing Form 1099 to the IRS and sending the taxpayer a copy of it by January 31. At first glance, you might get intimidated with 1099 forms- you don’t have to be.

Generally, there are only 4 essential parts:

  1. Taxpayer information: Name, address, and taxpayer ID number.
  2. Form issuer: Name, address, and taxpayer ID number.
  3. The amounts paid indicated on the appropriate box.
  4. Any amounts of withheld taxes.
You will receive a letter asking you to explain the discrepancy with the reports or a notice demanding payment for the taxes, penalties, and interests on the amounts that are not reported. A tax audit may be the least of things you will face if you withhold information.

What is considered as income?

Aside from juggling multiple jobs at once, there are many ways you can earn income. Even though the money does not come from a product, service, or occupation, it is still seen by the IRS as income. Thus, they still want to tax these other forms of income.

Different Types of 1099 Forms

1099-A (Acquisition/Abandonment of Secured Property)

1099-A (Acquisition/Abandonment of Secured Property)

If your lender cancelled a part of your mortgage or if there was a short sale for your home, then expect the 1099 in your mailbox.

1099-A (Acquisition/Abandonment of Secured Property)

Form 1099-A
If your lender cancelled a part of your mortgage or if there was a short sale for your home, then expect the 1099 in your mailbox.

1099-B (Proceeds from Broker and Barter Exchange Transactions)

1099-B reporting income from stocks and barter exchange
The IRS will send you a 1099-B if you earned income from a broker or mutual fund company. An example is income the from sale of your stocks or other securities. But if you sold your stocks directly instead of using bartering websites or services, you might not get a 1099. However, you will still need to report the income made.

The 6 essential information on the 1099-B form

  1. description of the asset
  2. date it was bought
  3. date it was sold,
  4. amount it was sold for,
  5. cost basis of the asset
  6. duration of the assent such as if it was a long-term or short-term asset. Long-term refers to assets owned for more than 1 year before the sale and these are taxed at a lower rate.

1099-C (Cancellation of Debt)

Form 1099-C cancellation of debt
If you have your debt or part of it cancelled by your lender, IWhen your lender cancels your devt or a part of it, you are not absolved from paying your taxes.The IRS sees cancelled debt as income and this is taxable to their eyes.

1099-CAP (Changes in Corporate Control and Capital Structure)

The IRS will send you a 1099-CAP if your shares in a company gave you significant assets such as cash, property, or stock.

1099-DIV (Dividends and Distributions)

The 1099-DIV form is for stocks or mutual fund dividends and other securities that earned more than $10 of income. This does not include dividends on shared accounts.

1099-G (Certain Government Payments)

If you receive unemployment compensation or income tax refunds/credits from the government, the IRS will send you the 1099-G form. You must also include income from any money from agricultural payments and other taxable grants.

1099-H (Health Coverage Tax Credit Advance Payments)

Health insurance companies will file a 1099-H form if they received advance payments from the Department of Treasury. These are payments for health insurance benefits of eligible recipients.

1099-INT (Interest Income)

1099-INT for income from interests in securities and assets
Similar to the 1099-DIV, the 1099-INT form is for income from interests in securities and assets. If a bank, individual, broker, and other financial institutions paid you more than $10 in interest, you will receive this form regardless of how much was withheld.

1099-K (Merchant Card and Third Party Network Payments)

You will include information of the gross amount you paid to in settlement of your dues to a payment card or third party network when you fill in the 1099-K form. Account numbers or other identifying data are considered as payment cards. Third party network payments, on the other hand, are settled through a different avenue. They are only considered income if the amount exceeded $20,000 and 200 transactions for that year.

1099-LTC (Long-Term Care and Accelerated Death Benefits)

Your insurance will report a 1099-LTC if they paid out benefits for the year. If you received accelerated death benefits on an insurance policy, you must report it.

1099-MISC (Miscellaneous Income)

1099-MISC for miscellaneous income
All other forms of income that are not covered in the other 1099 forms are reported on 1099-MISC form. Aside from income of self-employed and freelancers, the IRS also taxes prizes and awards.

1099-OID (Original Issue Discount)

You will receive the 1099-OID if you acquired financial instruments at a discount with a maturity of over a year such as bonds and notes.

1099-PATR (Taxable Distributions Received From Cooperatives)

The IRS issued a 1099-PATR to those who are part of a co-op and received at least $10 in patronage dividends.

1099-Q (Payments From Qualified Education Programs under sections 529 and 530)

The 1099-Q reports money that you receive from a 529 plan. Generally, the amounts you earned from a 529 plan are not taxable if used for all qualified educational expenses. So most often, this form is meant record-keeping only.

1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.)

income from pensions annuities retirements use 1099-R
Expect a 1099-R form in your mailbox when you get distributions from retirement plans or profit-sharing programs such as IRS or 401(k) plan. You will also receive this form if you took out a loan from a retirement plan. Depending on your retirement plan, it might be tax-advantaged, so keep the form for your records.

1099-SA (Distributions From an HSA, Archer MSA, or Medicare Advantage MSA)

If you took out money from your Health Savings account or other medical savings account, you will get a 1099-SA. Generally, money from these accounts are non-taxable if used for all qualified medical expenses. This form is often used as a “receipt”, proving you took money from the account.

Which forms should I file?

Don’t get overwhelmed and confused with all the 1099 forms. You should know all your financial transactions within the calendar year even if you don’t receive a Form 1099 you know you should have gotten. If this happens, contact the issuer. The issuer could be late in sending out the form or it might have gotten lost in the mail. To avoid any issues during tax season, check if the information in the 1099 form you received is accurate. If the reports state amounts greater than what you have on record, contact the issuer of the form or the entity that paid you. You don’t have to worry about receiving all the applicable forms because some of these are not your responsibility.

As an individual taxpayer, you are only concerned with the following:

  • 1099-INT
  • 1099-DIV
  • 1099-MISC
  • 1099-K
  • 1099-B
  • 1099-G
  • 1099-R

The 1099-MISC Form

Form 1099
Take note that one of the essential forms is the 1099-MISC. The 1099-MISC is equivalent to the W-2 form for self-employed individuals. Rather than the W-2, an independent contractor will use the 1099-MISC form to report annual income from any business or freelance work. The financial institutions you dealt with in a given tax year will report your income to the IRS. They will also send in the other 1099 forms.

How do I use my 1099 forms in my tax return?

How will you use the 1099 forms when you file your tax return? These forms are useful when you are double checking everything during your tax preparation. The 1099 forms will help you keep tab of your actual taxable income. Don’t worry because receiving a 1099 form doesn’t automatically mean you owe taxes on that income. You may have deductions that can offset the income. Nevertheless, always remember that the IRS knows about it. Take this into consideration when you are preparing your tax return. Double check if the information on the 1099’s you will receive are accurate. Check and compare your records. Once you confirm all amounts are correct, report it appropriately on the form:
  • Report dividend income and interests on Schedule B
  • Report income from self-employment or freelance work on Schedule C
  • Report capital gains or losses on Schedule D
  • Report retirement distributions on lines 4a and 4b of the 1040 form

What Does Self-Employed Mean?

There’s a huge difference between being an employee and being self-employed. First, independent contractors are not under the same tax liabilities as regular employees. Being self-employed means you don’t get the same tax withholdings, pre-tax deductions, and employee benefits. Generally, self-employed taxpayers use the 1099-MISC form to report their annual incomes. They report their incomes on Schedule C or C-EZ. Regular employees have their payrolls reported by their employers. Also, their taxes are automatically withheld for various FICA taxes.

You are classified as self-employed or an independent contractor if:

  • You run a business as a partner or sole proprietor; or
  • You are a freelancer or independent contractor not receiving a fixed, regular pay
Let’s take for example drivers for ride-sharing platforms such as Uber. Uber drivers should not confuse the nature of their employment. They are categorized as independent contractors and thus will use of 1099 forms and not W-2 forms. They work on their own set terms and hours. There are also no withheld taxes from their earnings. Being self-employed means you are responsible for reporting and filing your annual income returns. You are under different tax obligations compared to regular employees. There are also different tax deductions if you own  a business.

How much taxes do I pay on 1099 income?

The first tax obligation of a self-employed is the Self-Employment Tax (SET). The SET is equivalent to the Social Security and Medicare tax withholdings of regular employees. On top of the self-employment tax, you will also need to pay income tax. Since you do not have an employer to withhold taxes from every payroll, you must pay your taxes quarterly in the form of estimated taxes. Determine if you are subject to SE taxes and income taxes by calculating your net profit or net loss from the operation of your business. However, some net losses are limited. Refer to the tax guide for small businesses as published by the IRS for more information. If you earned more than $400 from being self-employed, you are required to file an income tax return. And even if you earned less than that, you might also be required to submit an income tax return depending on the filing requirements that apply to you.

How to calculate tax on 1099 income

In order to calculate your estimated tax, you will need your previous year’s annual tax return. Use a Schedule C or Schedule C-EZ form to report your annual income and use 1040-ES (Estimated Tax for Individuals) to report your Social Security and Medicare taxes.

How to file self employment taxes step by step

If this is your first year of being self-employed then you will have to make an estimate of your expected gross income for the year. It’s okay if your estimate is too high or too low, you can complete another 1040-ES to make the necessary recalculations. First, use the Electronic Federal Tax Payment System or the blank vouchers included in 1040-ES forms to pay for your estimated taxes. Then, e-file your taxes for accuracy and a fast refund. Lastly, keep all your financial records on hand.