A 1099 form must be issued at the end of a tax period in which an individual, business or other entity made a reportable transaction. A form 1099 is used to disclose income to both the Internal Revenue Service and the individual taxpayer (called the recipient). The obligation to file a form 1099 is reserved for transactions that occur as part of routine business operations.
Form 1099 is an IRS information return. The Guide to Information Returns (see Resources) illustrates the appropriate form for each type of transaction. Generally, anyone who receives funds on behalf of another person or taxpaying entity, or who makes a payment directly to the taxpayer, is responsible for issuing a form 1099. The basic exception is for payments that are insubstantial (less than $600) and not incurred as part of a regular business operation (not, say, money paid to a friend for informal babysitting).
There are more than a dozen variations of form 1099. All are intended for the same basic purpose, to report income not reported on a W-2 as taxes, wages or tips. But, each form is specifically designed for a particular type of income. For example, 1099-DIV is used to report dividends paid to a taxpayer, and will thus require specific information in this regard. The 1099-G, which is used to report grants and other government payments, necessarily requires different information.
The IRS makes informing the taxpayer the first priority for those who must issue a form 1099. The appropriate 1099 form must be issued to the recipient during the month of January for the preceding calendar year tax period. This allows the taxpayer to use the information in the form for completing their individual return and filing by their April 15 deadline.
The 1099 information return must also be submitted to the IRS so the income can be reported and verified against the taxpayer’s return. The deadline to submit form 1099 to the IRS is the end of February, unless the forms are being filed electronically. If this is the case, the forms can be submitted through the end of March. An extension of 30 days can be obtained by filing form 8809.
The issue of responsibility for issuing a 1099 form arises when a business is bought or acquired by new owners. Each owner has the obligation to report the transactions made during the period of their ownership by filing a separate 1099. However, the predecessor and successor owners can agree to file a combined information returns.