Form 1099 is one of several IRS tax forms used in preparing and filing an information return to report various types of income that are not wages, salaries, or tips in the United States.

Download Form 1099 from the official IRS website.

Sign IRS Form 1099

Notably, receiving Form 1099 does not mean owing tax money. There might be deductions that counterbalance the income. By definition, Form 1099 is a record that shows that a company or person who is not your employer paid money to you. The one who pays typically produces Form 1099 sending copies to the receiver and the IRS.

It is often used to report payments to independent contractors, rental property income, sales proceeds and all kinds of miscellaneous income. For instance, a bank might send a Form 1099 because there was interest from your savings. Also, most freelancers get these forms regularly from their clients since it is evidence that the client has paid.

How important is IRS Form 1099?

It is required by law to report these types of income. It is also necessary to avoid situations where the IRS knows that you did not report a certain income on your tax return. These documents are easy to track since they either have your taxpayer identification number or Social Security number.

How many types of IRS Form 1099 are there?

There many variations of Form 1099 available. The different versions are based on the nature of the income transaction so that the IRS can information on all these different types of income.

Some of the most common are the 1099-MISC and 1099-NEC. The 1099-MISC is for all income that does not exactly fit with the other 1099 categories while 1099-NEC includes nonemployee compensation.

Instructions for Recipient

After receiving Form 1099 from the bank or a company, you must fill in the following form.

  1. Recipient’s taxpayer identification number (TIN): To protect the taxpayer, this form may show only the last four digits of your TIN (social security number (SSN), individual taxpayer identification number (ITIN), adoption taxpayer identification number (ATIN), or employer identification number (EIN)). However, the complete TIN should be reported to the IRS.
  2. FATCA filing requirements: Follow the instructions for Form 8938. If the FATCA filing requirement box marked, then the payer is reporting on Form 1099 to satisfy its chapter 4 account reporting requirement.
  3. Account number: May show an account or another unique number the payer assigned to distinguish your account.

Instructions for Payer

After working with an independent contractor or freelancer you should issue a Form 1099 while making to use:

  1. The 2020 General Instructions for Certain Information Returns
  2. The 2020 Instructions for Forms 1099-MISC and 1099-NEC.

Filling in 1099-MISC and 1099-Nec

On both forms, there is a part that requires information such as the Payer’s name, Payer’s TIN, Recipient’s TIN, Recipient’s name, Street address, Account number and so on. The form is further divided into 7 boxes on the 1099-NEC form and 17 boxes on the 1099-MISC that need to be filled in where applicable.

For example for 1099-MISC, box 1 is about reporting rents from real estate and box 2 is about royalties from oil, gas, or mineral properties, copyrights, and patents. While the 1099-MISC is quite similar to the 1099-NEC form, there are some key differences such as Box 1 showing nonemployee compensation and/or nonqualified deferred compensation. Despite this principle in filling the form remains the same.