IRS form 1099 is used to report various types of payments to anyone other than a direct employee. In fact, there are 13 different versions of Form 1099 that you may receive or be required to submit over the course of the tax year. It is not used to report income; instead, it is used to reports payments made. The recipient of the 1099 is responsible to then report those amounts as income on his tax return.
The IRS classifies Form 1099 as an informational return that businesses are required to submit to report certain transactions to the IRS. It is not a form used to actually claim income. Instead, as an individual, you will receive a Form 1099 if a payment was made to you. Businesses that make these payments are required to provide a copy to the recipient of the payment as well as to the IRS.
Who Must File?
According to the IRS, “Any person, including a corporation, partnership, individual, estate, and trust, who make reportable transactions during the calendar year must file information returns to report those transactions to the IRS. Persons required to file Information returns to the IRS must also furnish statements to the recipients of the income.”
It is the business or corporation making the payment that is required to file. Recipients of 1099s must then use the form as documentation of income when they complete their individual 1040 income tax returns.
1099-DIV and 1099-INT
The 1099-DIV and 1099-INT are the 1099 forms that are most familiar to most taxpayers. The 1099-INT is the form that financial institutions use to report interest paid to account holders. Interest earned on bank accounts must be claimed as income.
The 1099-DIV form is used to report other types of payments made that must be claimed as income by the recipient. These include capital gains, dividends, 404(k) dividends and liquidation distributions.
The 1099-R form covers income affiliated with retirement payments such as annuities, IRA distributions, military retirements, pensions, profit-sharing plans, and Roth IRA plan conversions.
The 1099-MISC form is used to report more than two dozen types of payments that must be claimed as income by the recipient. This category includes payments made by businesses as fees to attorneys, service providers and freelancers. Other types of payments covered by the 1099-MISC include reimbursement for auto expenses, awards and bonuses, commissions, prizes and vacation allowances for non-employees.
A payer of rents and royalties must also file this tax document.
Filing a 1099
Any business that makes reportable payments must complete the proper 1099 form for each individual, business or organization that receives a payment. There are minimums in place, however. For example, fees paid to an independent contractor must exceed $600 in a year before the IRS requires completion of a 1099 for that provider.
The IRS requires any institution or entity who has in excess of 250 1099 forms annually to file those forms with the IRS electronically.