Tax Filing season has officially begun. And with the wide array of tax forms pertinent for filing, it can get overwhelming. But the most complex of them all is Form 1099 because it has many different kinds used to report many different, specific kinds of income other than salaries, tips, and wages.
Imminent employers, organizations, and institutions are mandated to release it by January 31 and must be filed before the end of February. If, however, the taxpayer didn’t receive the form, he/she is still required to file it and pay tax on it. The IRS, as well as the state you are residing, knows whenever the form is issued and is matched to a taxpayer’s Social Security Number, so they would know if you fail to include in your return.
Important things to take note of:
- Information tax return, such as Form 1099, is not a tax return but rather a report of any financial transaction made within the year or taxable income not considered salary, wages, and tips (cause that’s what Form W2 is for)
- Employers, organizations, or institutions who issued late, incorrect, and incomplete forms may be sanctioned by the IRS and penalty will depend on the number of days the form’s delayed and the degree of error and inaccuracy
- However, correction can be made by informing the IRS and subsequently sending the right form/s
- The IRS actually prohibits submission of returns even before they’ve received all forms because the agency matches every form against tax returns so basically, such returns will undergo auditing. So it is advised that all tax returns must be filed after receipt of tax reporting forms.
Now that you the basics of Form 1099, time to move on to its respective classifications and filing procedures.
Understanding the Types of Form 1099
As of 2014, there are 16 kinds of Form 1099 and are all intended for a specific kind of income received by a person from a work or transaction. Although they are myriad, they all serve one purpose — to inform and report to the Internal Revenue Service (IRS), as well as the state the taxpayer is residing in, the certain type of income a taxpayer received that didn’t come from salaries, wages, or tips.
Here’s a streamlined and in-depth discussion of each kind of Form 1099 with imperative information each taxpayer should know, because as mentioned, the form is divided into different types for specific kinds of income:
#1 Form 1099-A (Acquisition or Abandonment of Secured Property)
Released by a lender who have acquired or repossessed a property, or an abandoned one, that was subject to debt. A bank usually issues this form to house owners whose property has been foreclosed.
The form reports the date of transfer of the repossessed property, fair market value of the property, and outstanding loan balance on the property. It is also through this form that gains/losses on the sale of property is identified.
Take note that a property sold through foreclosure auction may incur capital gains. Some house owners whose property has been foreclosed or repossessed assume that they will not have a capital gain which causes unpaid tax liability .
Form 1099-A is normally issued by January 31.
#2 Form 1099-B (Proceeds From Broker and Barter Exchange Transactions)
Issued by a broker or barter exchange who sold a stocks, bonds, mutual funds, covered security, which include bonds, stocks, bond maturities, securities future, forward, and foreign currency contracts, tenders, and short sales.
It reports barter exchange income, commodities, profit and loss from futures, and sales of securities. It is also used to report date of sale, sold amount, as well as other transaction information.
Form 1099-B is given to people:
- Who the broker have sold any of the aforementioned for cash
- Who exchanged property or services through barter exchange
- Who received cash, stocks or property from a corporation which the broker is acquainted with
Form 1099-B is normally issued by January 31
#3 Form 1099-C (Cancellation of Debt)
Reports cancellation of debt owed to a financial institution amounting to $600 or more. Financial institution may include the US Postal Service, the federal government, credit union, or any organization engaged in trade or business that involves lending money.
It is issued by the lender or creditor who forgives or cancels a debt owed. The IRS mostly considers debt cancellation as an income and must be reported as “other income” on Form 1040. In some cases, creditors send their customers the form when they no longer required to pay their outstanding balance to report the amount of debt. This must subsequently be reported on your tax return.
Form 1099-C is normally issued by January 31
#4 Form 1099-CAP (Changes in Corporate Control and Capital Structure)
Given to shareholders of a corporation if the control of the corporation has been acquired or the corporation undergone change in capital structure.
The recipient of this form would normally receive cash, stock, or other property as a result of the aforementioned circumstances.
Form 1099-CAP is normally issued by January 31.
#5 Form 1099-DIV (Dividends and Distributions)
Reports dividends and other distributions a person, who owns investment stock portfolios and mutual funds, received in the year. Such payments are not considered income earned from selling stocks, but rather, a corporation’s payment to its shareholders.
A person who owns stocks, mutual funds, and other securities, and was paid at least $10 in distribution such as dividends, capital gain and nontaxable distributions paid on a stock and liquidation
Form 1099-DIV is normally issued by January 31.
#6 Form 1099-G (Certain Government Payments)
Issued by government agencies to report government payments received by a person such as:
- State and local income tax refunds,
- Unemployment compensation
- Taxable grants
- Agricultural payments
- Earnings from state tuition program received within the year.
Form 1099-G is normally issued by January 31
#7 Form 1099-INT ( Interest Income)
Issued by financial institutions, banks, or brokerages to report taxable interest payments or interest income of at least $10 interest received by a taxpayer. It is also issued to people whom the aforementioned have withheld and paid any foreign tax on interest, as well as any federal income tax withheld and wasn’t refunded.
Form 1099-INT is normally issued by January 31
#8 Form 1099-K (Merchant Card and Third Party Network Payments)
Used to report payment transactions made to merchants or other entities in the form of credit/merchant cards or third-party networks.
The form was first issued in 2011 by banks and other payment processors such as credit card payment processors, to report gross receipts of payments which includes payments received through PayPal.
Taxpayers, typically business owners, with at least 200 transactions and have at least $20,000 gross reportable payment transactions are mandated to file the form.
Form 1099-K is normally issued by January 31.
#9 Form 1099-LTC (Long-Term Care and Accelerated Death Benefits)
Issued by an insurance company, governmental units, or viatical settlement provider, to report any payments of long-term care benefits or accelerated death benefits.
It is given to claimants who received taxable distributions from their insurance. However, the amount reflecting on the form aren’t taxable income to the taxpayer.
Form 1099-LTC is normally issued by January 31
#10 Form 1099-MISC (Miscellaneous Income)
Commonly mistaken with Form W2 as both serve as an information return. For starters, Form W2 is filed by employees whose tax have already been withheld by their employer. Form 1099 on the other hand is for independent contractors (not considered as employees) who receives their pay, of at least $600 without deductions. Hence, they are liable for their own taxes.
It is issued by an employer who paid at least $10 in royalties or broker payments or $600 in rent, services, prizes and awards, or other miscellaneous income compensation for the work performed by a nonemployee or unincorporated business such as a partnership, limited liability company, limited partnership, or estate.
- An employer is not obligated to issue the form if not engaged in a trade of business, payment was given to an incorporated business, payment given to an independent contractor or unincorporated business is less than $600 within the tax year
- An employer shouldn’t issue the form to a person or company that is considered a corporation or an incorporated independent contractor. Identifying whether or not an individual or company you employed is considered a corporation is by having them submit Form W-9 before making any payments.
It must also be noted that the IRS penalizes misclassification of employee and independent contractor.
Form 1099-MISC is normally issued by January 31
#11 Form 1099-OID (Original Issue Discount)
Reports annually taxable amortization bond interest on discounted bonds, as well as original issue discounts of at least $10.
Original Issue Discount (OID), is a type of interest that tantamounts to the excess of a debt’s stated redemption price at maturity over the issued price. It includes debentures, notes, certificates, and other proof of indebtedness. A taxpayer must include the amount of its OID in its annual gross income.
Form 1099-MISC is normally issued by January 31
#12 Form 1099-PATR (Taxable Distributions Received From Cooperatives)
Issued by the cooperative to a taxpayer who received any patronage dividends (mostly associated with fams) of $10 or more or any withheld federal income tax under the backup withholdings rules
Form 1099-PATR is normally issued by January 31
#13 Form 1099-Q (Payments From Qualified Education Programs)
Issued by the administrator or bank that manages that manages the qualified educational program to taxpayers who contributes a beneficiary’s education.
It reports gross distributions, as well as total withdrawals made during the year. Aside from that, Form 1099-Q also reports type of account owned, amount transferred to the qualified tuition plan, distribution representing income of initial investment, and basis of distribution.
Form 1099-Q is normally issued by January 31
#14 Form 1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.)
Reports the total amount of taxable withdrawals from a taxpayer’s Individual Retirement Account (IRA), as well as distributions received from pension plans, retirement plans, and annuities & profit-sharing plans.
It is issued to a taxpayer who received at least $10 from distributions and payouts from his/her IRA or other retirement income sources.
Form 1099-R is normally issued by January 31
#15 Form 1099-S (Proceeds From Real Estate Transactions)
Issued to report sale or exchange of a certain real estate, timber, stock in a co-op, or permanent structures. A taxpayer who closed a real estate transaction must inform the seller and the IRS on the proceeds of the transaction.
Form 1099-S is normally issued by January 31
#16 Form 1099-SA (Distributions From an HSA, Archer MSA, or Medicare Advantage MSA)
Issued by the administration the Health Savings Account (HSA) or Medical Saving Account (MSA), such as Archer MSA or Medicare MSA to claimants who used their HSA or MSA to pay for their health expenses. It is used to report all distributions taken from HSA or MSA.
Form 1099-SA is normally issued by January 31
How to File your 1099-Forms?
Knowing the right form is salient because the IRS penalizes late and erroneous return, as well as misuse of tax forms as well. And to avoid any consequences, it is better to know the appropriate way to file one’s federal income tax. Here’s a step-by-step guide of the process:
#1 Confirm eligibility of the recipient
Form 1099 reports specific kinds of income and must be received by specific kinds of people. It is vital to know if the person the form is to be issued is eligible to receive it, as well as the type of the form to be given.
#2 Gather essential personal information as well as necessary documentations
Once it has been established that the recipient is indeed qualified, the issuer must gather all relevant information about the recipient, like the total amount paid to the taxpayer, his/her personal information (legal name, address, identification numbers, tax classification, etc)
#3 Generate the form/s to be furnished
1099s can be produced through the IRS, bought from an office supply store, or requested online. After receiving the form, it must be filled out appropriately with the corresponding information of the recipient. Each kind of Form 1099 comes with different instructions so every detail that will be supplied must be accurate and precise to avert auditing and penalties.
#4 Review the form before releasing it
Asses the form before issuing them. Check for miscalculations, incorrect or missing information of the recipient.It is better to catch any errors that have been overlooked before sending them and before the IRS sees them. This is the best way to save money from penalties as well as from being audited.
#5 Know the deadline
Most of the Forms 1099 are prescribed to be released by the end of January to taxpayers, and end of February to the IRS, local states, and other relevant agencies/offices. Extensions may be requested but will only be granted on the discretion of the people/offices/agencies who are supposed to receive them.
Taxpayers must include every Form 1099 they have received in their federal tax return which is normally due in April. Extensions can also be requested but can only be granted under certain circumstances and on the discretion of the IRS.
#6 Issue the form to the applicable taxpayer
After furnishing the form, issue them to the taxpayer on the scheduled date. But it is recommended to have the forms released before the supposed date of issuance so the recipient can analyze and check the form for any corrections (or inaccurate information if any)
#7 Submit a copy to the IRS and state tax department
The IRS, as well as the recipient’s state tax department, also require the issuer of Forms 1099 to send over a copy to the them to update and notify them any taxable transaction/s the issuer have had over the course of the year. The copy will also be used to check whether taxpayers indeed file every income they have received within the tax year.
#8 Include every Form 1099 in federal income tax return
Every Form 1099 received, and every income received deemed taxable even without receiving its equivalent Form 1099, must be reported in one’s federal income tax return. A copy, if so required, must also be submitted along with the return.
Which tax filing option is the most practical?
Tax filing can be troublesome to any taxpayer because it involves a lot of paper and legalwork. Although manually doing one’s tax return can be reassuring since you know you’re yielding 100% right information, it can increase one’s risk of errors especially if you have a complicated tax return (which normally comprise of multiple forms and schedules).
Hiring a professional tax preparer is the next best option because they know the tax codes and changes, as well as the proper technique in tax filing. They can also handle IRS’ auditing. But this season is the toughest for them and they get swamped with almost every taxpayer in town, especially those who choose to procrastinate. These kind of circumstances leaves your tax at a greater chance of being overlooked or having errors. Plus, they charge significantly high for their services.
Fortunately, the process of tax filing is continuously developing and on method that can save any taxpayer’s time and money is by e-filing or using tax preparation softwares. Filing online have varied costs depending on the kind of tax filing service to be availed, as well as the form to be used. It may cost more than DIY tax filing, it can relieve any taxpayer’s difficult and time-consuming tax preparation and filing. You simply have to provide necessary information, then your chosen e-filing service will do the rest of the job for you — from generating the form to filing it to the IRS. It also decreases a taxpayer’s risks of committing error, although of course it still has to be manually checked for typos or omissions. And of course, filing online have an extended deadline and refunds will be received at a relatively earlier time.
eFiling Plus is the perfect example of an efficient and cost-effect online tax filing service that supports different tax forms (including 1099s), helps businesses furnish their 1099s, submission to the IRS and/or SSA, and issuing them to the appropriate recipients.