IRS Form 1099 is a key part of filing annual income taxes for certain earners—including freelancers, independent contractors, income-earning stock investors, and some retirees. The 1099 covers income earned from a non-employer source. It can be filed by either a company or individual who paid the recipient of the form.
Because IRS Form 1099 documents taxable non-employee income, it’s important to keep up-to-date copies of any 1099 sent to you—double-checking the listed earnings to make sure they’re accurate. There are different subtypes of the 1099, depending on the type of taxable income being documented.
While by no means comprehensive, below is a general overview of IRS 1099 forms, including who might receive one and what sorts of income are documented therein.
Everyone’s financial and tax scenario is unique, so it’s advisable to contact a licensed tax professional or the IRS with income tax questions about your specific earnings or tax liability.
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What Do IRS 1099 Forms Document?
IRS Form 1099 reports income earned from self-employment, interest, dividends, and other sources. 1099 recipients can get the IRS form from the company, state, individual, or organization that paid them potentially taxable income.
Since this document can contain information about potentially taxable income (pre-deductions), it’s worth holding on to all 1099s received, whether printed or sent electronically. IRS 1099 forms can be helpful when filing both state and federal income taxes.
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Who Receives a 1099?
Should you expect a 1099? Well, it depends. If you do any work as a freelancer or an independent contractor, then it’s likely that you will receive one for pretax, non-employee compensation.
More specifically, the answer is yes if you’ve received at least:
- $600 in business rental income
- $600 for services from a person or business that is not your employer
- $600 in prizes or awards
- Other non-employee income — including $10 or more in royalty income, $600 of business attorney fees or $5,000 in direct sales.
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Why Did I Receive a 1099 for Investments?
Another common reason you may receive an IRS Form 1099 is investment income. If you own bonds, dividend-paying stocks or mutual funds that produce income, it’s likely that you’ll receive a 1099 that outlines the income for which you’ll be liable. Even if you reinvest those dividends immediately, you’ll have to pay income tax on dividends that have been paid out.
Like an IRS W-2 form, a 1099 reflects your income for a given year. But a W-2 reflects income from wages or a salary, which come to you with the taxes already having been deducted. A 1099 shows raw income that has yet to be taxed. Some (but not all) recipients may qualify for further tax deductions on the income listed on the 1099 form.
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Different Types of 1099 Forms
Taxes are complicated, and 1099 forms are no exception. There are several versions of 1099 forms. They include:
- 1099-MISC: Independent contractors and freelancers receive this from those who have paid them at least $600.
- 1099-INT: This reports interest income. It usually comes from a financial institution for interest income from a CD or savings account.
- 1099-A: You’ll receive this form if your mortgage lender canceled some or all of your mortgage, usually because of a foreclosure.
- 1099-B: If you trade or barter securities, or anything, this form is the official record of the income you received on those trades, and it’s usually filed by the exchange where you made the deal.
- 1099-C: Debt forgiveness is considered income, and 1099-C tracks that income.
- 1099-G: If you received unemployment benefits or any other money from a state, local, or federal government, such as a tax refund or credit, you may receive one of these
- 1099-S: Income earned on real estate transactions will be reflected in this form.
- SSA-1099: This reflects the Social Security payments you’ve received in the past year.
- 1099-K: This report shows total receipts of payments from PayPal, credit cards, and other sources. But to receive the form, you have to receive $20,000 from at least 200 transactions.
- 1099-DIV: Annual dividends and distributions from any type of investment will show up on this form.
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Understanding the 1099 for Investors
The 1099-DIV and 1099-INT are perhaps the most pertinent types of 1099s for anyone who invests. It’s important to note that anyone who takes in more than $1,500 in interest or dividends during a given year will also have to file a Schedule B as part of their tax return.
Investment dividends and interest are both considered income and are taxed at your income tax rate. At the same time, capital gains made on short-term investments may also be taxed at your income tax rate.
It’s important to factor in any returns you’ve made on investments held for less than a year when tallying your tax return at the end of the year.
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Tabulating Tax Deductions for the Year
While wage and salary income are usually taxed before being disbursed to employees, other types of income usually aren’t. But that fact doesn’t mean 1099 recipients necessarily owe taxes on all of the income listed on the IRS 1099 form.
For instance, freelancers and independent contractors generally can, or must, pay estimated quarterly taxes to avoid a big tax bill each year. In these cases, they may even receive a tax return on their 1099-reported income (assuming overpayment).
At the same time, some 1099 recipients could have deductions that offset the income. Simply put, deductions reduce tax liability by lowering one’s taxable income for a given year. The standard deduction for tax year 2020 for a single person or a married couple filing separately is $12,400, and for a married couple filing jointly, $24,800. But itemized deductions might include:
- Student loan interest
- Mortgage interest
- Qualifying charitable donations
- Medical expenses (for those who itemize deductions)
If you’re a freelancer or independent contractor, you may be able to deduct a wide range of business-related expenses — including a home office, supplies, travel and client dinners.
Regardless of which deductions you claim, it’s important to consult with a tax professional to make sure you’re neither overpaying nor underpaying your taxes.
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IRS Form 1099 documents income earned from non-employer sources and can be used when filing and calculating one’s annual tax liability. It’s commonly sent to freelancers, independent contractors, investors, Social Security recipients and those whose forgiven debts count as taxable income.
For additional specifics on this tax filing season, 1099 recipients may want to check out IRS Filing and Payment Deadlines Questions and Answers page.
In addition to IRS forms, keeping tabs on income and expenses — whether it’s money earned as a freelancer or tax-deductible expenditures — can be a good way to understand one’s tax liability from year to year.
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