When people in the workforce industry talk about independent contractors, we often refer to them as "1099 workers." That’s because during tax season, the Internal Revenue Service (IRS) requires companies to issue 1099 forms to independent contractors for reporting income (as opposed to the W-2 forms they must issue for a full-time employees). So, what exactly is this form, and why are there so many different types of 1099 forms? Here’s a little insight.
There are numerous kinds of 1099 forms. Each one is used to report a specific information related to payments and transactions, and will have its own requirements for extensions, due dates and "minimum amounts reported." The IRS has 16 different kinds of 1099 forms, but here is a brief explanation of the seven most common:
This is the one we commonly refer to regarding the payment of independent contractors. This form must be filed by an organization that pays any independent contractor at least $600 for professional services during the year or $10 for any royalty payments, and it too must be sent by January 31. For more information on this form, check out this webinar "Everything You Need to Know About a 1099" led by two of our senior members, Cheryl Tracz and Jarret Gardner.
Financial institutions are required to file this form if they pay an individual more than $10 in interest during the year or $600 for business related interest. The 1099-INT must be sent by January 31.
This form must be filed if an individual owns stock or other securities and receives over $10 in distributions such as dividends, capital gain distributions, or nontaxable distributions, that were paid on stock and liquidation distributions. The 1099-DIV must be sent by January 31.
This form must be filed if a business has at least 200 transactions and at least $20,000 in sales during the year, processed by third-party payment processors such as PayPal or Google Checkout. This form is also issued by credit card payment processors and must be sent by January 31.
Brokers or mutual fund companies must file this form when an individual sells stocks. It shows the amount and date of the sale, and provides cost basis information. There is no minimum amount paid requirement for being issued, and brokers have until February 15 to issue this form.
This form is used to report unemployment compensation, state and local income tax refunds, agricultural payments, and taxable grants. Any payment greater than $10 requires this form to be issued and it must be sent by January 31.
This is the form filed when one receives a distribution from a retirement plan, such as an IRS, Roth IRA, 401(k) plan. Any distribution greater than $10 requires this form to be issued and it must be sent by January 31.
Should any taxpayer be expecting a 1099 and not receive one, they are advised to report the income received nevertheless. Reporting extra income that doesn’t exactly match to a 1099 received by the IRS will not cause any problems. However, not reporting income that the IRS is advised of will lead to an individual audit.
It’s also important to note that some organizations will issue the different types of 1099 forms throughout the year, most often at the close of their fiscal quarters to ensure they are not delinquent in reporting. Therefore, if you receive a 1099 mid-year, be sure to retain it to report in the next tax season.
This post provided by nextSource contributing writer, Cheryl Tracz, Director, Supplier Partnerships (SPO) and Service Excellence.