What are 1099 forms and why are they important?

The 1099 form is a form where U.S. taxpayers report all of their income so that the IRS can collect the appropriate amount of taxes. The IRS compares its own data with the information reported on 1099 forms, the income that taxpayers report on their Form 1040 which is the tax form used for personal federal income tax returns and with the information reported on other forms, such as the W-2 forms which are the forms that employers are required to submit to the IRS in order to report all the salaries they pay to employees.

Who should receive a 1099 form?

Form 1099 is used to report certain types of non-employment income to the IRS. Generally, businesses must issue the forms to any payee (other than a corporation) who receives at least $600 during the year which is the basic threshold rule. However, it is usually recommended that you get a 1099 form for every bank account you have, even if you earned only $10 of interest income. 

Types of 1099 forms:

Form 1099-DIV: Dividends and Distributions

If you own a stock or a mutual fund that pays dividends, you should receive a 1099- DIV form. Form 1099-DIV is available on the IRS website.

Form 1099- INT: Interest Income

You should receive a 1099-INT form if you have a checking, savings, or another bank account that earns interest. All copies of Form 1099-INT are available on the IRS website.

Form 1099-MISC: Miscellaneous Income

Form 1099-MISC is received by those if you worked for someone as an independent contractor. If you're self-employed and have several clients, you should receive a 1099-MISC from each client who paid you $600 or more. 

Form 1099-R

The full name of this form is Form 1099-R: Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. You should receive a 1099-R if you get $10 or more from your IRA or another source of retirement income.

Things to know about 1099 Form:

• Even if you don’t get a 1099 form, you are responsible for paying the taxes you owe. If the company submits a 1099 form to the IRS, but you don’t receive it.The IRS will send you a letter that is a bill stating that you owe taxes on the income. If the business didn't file the 1099 form for you on the income, you should report it as a miscellaneous income and ask a tax pro for other alternatives.
• Any Form 1099 sent to you goes to the IRS. The deadline is Jan. 31 for mailing 1099s to most taxpayers, but some are due Feb 15, others are due to the IRS at the end of Feb. Some payers do send them simultaneously to taxpayers and the IRS. Most payers mail taxpayer copies by Jan 31 and then wait a few weeks to collect all of the IRS copies, summarize them and transmit them to the IRS, usually electronically.
• Report the errors immediately on a 1099 form. For instance, you get a 1099-MISC on Jan 31 reporting $8,000 of pay, when you know you received only $800 from the company that issued the form. Inform the payer immediately. There may be time for the payer to correct it before sending it to the IRS. If the payer has already dispatched the incorrect form to the IRS, ask the payer to send in a corrected form. There's a special box on the form to show it is correcting a prior 1099 to make sure the IRS doesn't just add the amounts together.
• Never ever overlook a 1099 form, if you forget to report the $500 of interest you earned on a bank account, the IRS will send you a computer-generated letter billing you for the tax on that interest which you need to pay.

Conclusion:

We have discussed what is a 1099 form and the varieties of 1099 form. Finally, we mentioned important things to know about the 1099 form.