Takeaways
- Form 1099s are income report forms sent to the IRS and you for tax purposes.
- Form 1099s document income earned outside of your W-2 earnings.
- Businesses send Form 1099s to freelancers, consultants, or part-time workers.
- Form 1099s must be sent to you by January 31 for the prior year's earnings.
- Form 1099s let you accurately file your taxes and capture multiple income sources, such as royalties, rents, dividend payments, or interest income.
What Is a Form 1099?
A Form 1099 is an Internal Revenue Service (IRS) tax document reporting the income you receive outside your Form W-2 employer. The 1099 forms capture many different types of payments made to you by a business or individual.
Businesses paying income should fill out the form and send it to both the IRS and you so you can appropriately file your personal income taxes.
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How a Form 1099 Works
The purpose of a Form 1099 is to track income outside traditional employment. Form 1099s for the previous tax year are usually sent out by January 31.
Receiving your Form 1099s in January gives you ample time to include the additional income in your annual tax filings by the filing deadline. For example, you would receive a Form 1099-INT in January 2025 for interest payments paid in 2024.
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A Form 1099 should include your name and tax identification number as the recipient. The payer's information should include their name, address, and taxpayer identification number. You should also see the total amount you were paid from this business or entity.
Form 1099-MISC Example
Source: IRS Website[1]
When to Get a Form 1099
You will typically receive a Form 1099 if you have made money outside a typical W-2 employment situation. Both you and the IRS receive a copy of a 1099 form. You are responsible for including this income in your tax return. Failing to report this income to the IRS on your tax return can result in penalties, fees, and interest payments. It is crucial to review all your forms carefully when preparing your taxes.
According to a recent survey, nearly one-third of Americans earn money through a side hustle in 2024.[2] If you do freelance work or have a side hustle and earn more than $600 during the year, you should receive a Form 1099 from your company.
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Form 1099s capture earned and unearned sources of income. Financial institutions also use 1099 forms to report dividend payments, interest income, or capital gains to the IRS.
Taxpayers who still need to receive a Form 1099 or receive an incorrect form should contact the payer directly. If you cannot resolve your issue with the payer, you can contact the IRS directly for help.[3]
9 Common Form 1099s
Depending on your financial transactions and earnings throughout the year, you may receive multiple 1099s. Here are nine of the most common types of Form 1099s and what each one reports:
- 1099-A: This form helps report transactions involving debt or property when the property is acquired or abandoned, such as in foreclosures.
- 1099-B: A 1099-B reports proceeds from sales of securities or certain commodities. Typically, brokers or barter exchanges issue these forms. (Read more about commodities).
- 1099-C: This form is sent to individuals whose $600 or more debt has been canceled or forgiven. The IRS considers this debt taxable income, and the amount needs to be included in taxes.
- 1099-CAP: If you have been involved in mergers or acquisitions, a 1099-CAP reports corporate control changes or capital structure affecting shareholders.
- 1099-DIV: If you receive dividends and distributions from investments like stocks, mutual funds, or real estate investment trusts (REITs), you will be issued a 1099-DIV.
- 1099-INT: This form is to report interest income from savings accounts, certificates of deposit, or bonds. You should receive a separate 1099-INT for each account you own that produced interest income. (Read more about Certificates of Deposits).
- 1099-MISC: This form captures payments of $600 or more from rent, prizes, awards, payments to an attorney, and other income. (Read about how to start investing in real estate).
- 1099-NEC: This report contains income of $600 or more earned from nonemployees, such as freelancers, consultants, or self-employed taxpayers (think Lyft driver, freelance writer, or Uber Eats driver).
- 1099-SA: You will receive this form if you withdraw or use funds from a Health Savings Account (HSA) or a Medicare Medical Savings Account (MSA). These accounts are for individuals with high-deductible health plans to help offset the costs. (Read about how to invest with an HSA).
What Is a 1099 Employee?
The term "1099 employee" is somewhat misleading because individuals receiving a Form 1099 are not technically employees. 1099 employees are independent contractors or freelancers who work on a per-project basis rather than part of a company's payroll.
Unlike W-2 employees, 1099 workers are responsible for income and self-employment taxes. They do not receive benefits like health insurance or 401(k) matching contributions from the companies they work with.
While this arrangement offers flexibility, handling taxes and expenses appropriately requires more financial planning.
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Form 1099 vs. Form W-2
Employees are issued a Form W-2, which reports income, taxes withheld (federal and state), Medicare, and Social Security contributions. Employers handle payroll taxes, simplifying the process for employees.
Independent contractors are given a 1099. Since it does not include tax withholdings, contractors must track and pay their taxes independently.
The most significant difference between these two forms is the employment relationship with the payer. W-2 forms are part of a traditional employer-employee setup, while Form 1099s are used for independent contractors and freelancers.
Smart Summary
Unlike a Form W-2, which is provided to employees, a Form 1099 applies to individuals who earn income through freelance work, investment income, or other non-traditional sources. This form serves as a record for you and the IRS, ensuring that all income earned is reported during tax filings. If you receive a Form 1099, include the income in your tax return to avoid discrepancies or possible penalties.
(1) Internal Revenue Service. Form 1099-MISC. Last Accessed January 12, 2025.
(2) Bankrate. Survey: More than 1 in 3 Americans earn money through side hustles, 32% think they’ll always need them. Last Accessed January 12, 2025.
(3) Internal Revenue Service. What to do when a W-2 or Form 1099 is missing or incorrect. Last Accessed January 12, 2025.
