The Ins and Outs of 1099s

1099 is a form used to report certain types of non-employment income to the IRS. There are different types of 1099s, and which one is used depends upon the type of income received. It is important that the correct form is sent to the IRS because they will match it again your income tax form at the year-end.

Type of 1099s

There are twenty types of 1099 forms. Here are a few of the most popular ones.

• 1099-INT: Sent to accountholders who earned more than $10 in interest per tax year.
• 1099-DIV: Sent when dividend income is earned during a tax year.
• 1099-G: Sent when you receive government money such as a refund or unemployment benefits.
• 1099-R: Sent when you receive a pension, IRA, or retirement distribution. Sometimes they are sent when an annuity or life insurance policy will send one.
• 1099-B: Sent when a stock, commodity, or security is sold. Some bartering transactions are reported as well.
• 1099-S: Sent when a real estate holding is sold.
• 1099-MISC: Sent when non-employment income is received, such as a prize or award.
• 1099-NEC: Used for non-employee compensation that is $600 or more in a tax year. Some examples include independent contractors such as graphic designers, writers, web developers, etc. In addition, self-employed workers who earned more than $600 in income from freelance or side gigs will receive a 1099-NEC. Benefits, commissions, and royalties are also considered non-employee income. Those individuals should receive a 1099-NEC too.

Deadline

The deadline to mail 1099s to taxpayers is Jan. 31^st

Taxpayer Responsibilities

Even if you do not receive your 1099, you are still responsible for all taxes owed on income earned throughout the year. If you received the wrong type of 1099, you must ask the originator to send a correction. Make sure your address is correct with banks, employers, etc. Also, make sure the information on your 1099 is correct. The IRS gets a copy, and you will receive a tax bill based on all reported income, even if you never received a copy of the 1099 and even if the number is wrong. Therefore, if it is wrong, make sure the originator corrects the information.

Business Owner Responsibilities

You and your company must provide a 1099-NEC to every person/company you contracted with throughout the year that is more than $600. You must provide a 1099-NEC to any contractor you paid a commission as well. According to the IRS website, you must provide a 1099-MISC for the following:

• At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
• At least $600 in:
  • Rents. (Office space not paid to a property manager)
  • Prizes and awards.
  • Other income payments.
  • Medical and health care payments.
  • Crop insurance proceeds.
  • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
  • Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
  • Payments to an attorney.
  • Any fishing boat proceeds.

In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

You must provide your 1099 by January 31^st.

How does my company create a 1099?

Before creating a 1099, you’ll need to collect W-9 tax forms, which are similar to W-4 forms that employees complete. It contains tax ID number, name, address etc.

If you are a Safe Haven Accounting client and have payroll services provided through us, we provide the 1099 service automatically. If you do not have payroll service through us but are a bookkeeping client, we can provide this service for you.

What if I am unsure if I need to send someone a 1099?

Contact Safe Haven Accounting, and we can help you.

These are just a few examples of why taxpayers and companies give and receive 1099 forms. Situations vary, and it is best to talk to us if you are unsure if and when to send someone a 1099.

Sources:
https://quickbooks.intuit.com/r/taxes/small-business-guide-to-1099-form/
https://www.irs.gov/forms-pubs/about-form-1099-misc
https://www.investopedia.com/financial-edge/0110/10-things-you-should-know-about-1099s.aspx#:~:text=Businesses%20are%20required%20to%20issue,for%20owning%20a%20company’s%20stock.