What Is a 1099 Form and What Is It Used For? SMB Guide

Vivien Thuri

As a business you have many responsibilities, especially when it comes to tax season. 

During tax season it’s essential that you file all the necessary forms so the individuals working for you can pay their taxes on time, accurately.

As a business, one of the forms you may have to file with the IRS and provide to your contractors is Form 1099.

This article will explore what is a 1099 Form, including the specific reporting requirements and how to fill it in.

|| However, please note that this does not constitute official tax advice, and it’s always best to consult with a tax professional if you’re unsure about what forms you should file. ||

us-tax-season

What is a 1099 Form?

The 1099 Forms are a series of information returns that the IRS requires businesses to provide contractors and vendors that they make certain types of payments to. 

There are a number of different 1099s that each report various types of payments. For example:

  • 1099-NEC Form is used for reporting non-employee compensation

  • 1099-MISC Form is used for reporting miscellaneous information

  • 1099-INT is used for reporting interest income¹

Both US and non-US businesses are required to issue 1099s to any contractor that performs services for them in the United States.

As a business, the two most common 1099s you may need to provide people with are 1099-MISCs and 1099-NECs. 

However there are nearly two dozen types of 1099s so the type of business you are and the types of payments you make to vendors can vary your 1099 obligations drastically. 

💡Remember that for any income where a 1099 is required, you are responsible for paying the correct tax amount because no withholding will have been done for you. 

|| 1099 reporting is complicated and can be confusing. If you are not sure which types of 1099s you should be providing to vendors, contractors or customers that may earn non-employment income by working with or being a customer of your business, please contact a tax advisor. ||

What is a 1099 Form used for?

There are different types of 1099 Forms, all used to report different incomes. You may find a list of the most common 1099 Forms below.

Certain 1099 Forms are used to report:

  • Any freelance or independent contractor work completed in the year

  • Earned interest over $10

  • Income earned from dividends and stocks

  • Money received from the government

  • Retirement account distributions and payouts

  • Selling stocks or securities

  • Real estate transactions

  • Any income that falls outside of the current categories of 1099 Forms

Who gets a 1099 Form?

As a business owner you’re required to issue a Form 1099-NEC to any individual not on your payroll, but completing a project or assignment as an independent contractor if they are paid over $600 in the year.²

Similarly, if a business pays income or payments to an attorney in an amount of $600 or more, those payments must be reported on a 1099-MISC. ²

Who is a 1099 employee?

A 1099-NEC is issued when a business has paid an individual for services as an independent contractor rather than a full-time employee. 

A 1099 employee is self-employed and works for themselves rather than being employed by a business as a permanent staff member.

How to file a 1099 Form?

woman-with-laptop-cheerful

As a business owner, if you are required to issue someone a 1099, you must ensure they receive the form by January 31 of the following calendar year. ³

Typically individuals receive 1099s so this due date is specifically so they can use the information to properly file their own tax return with the IRS. 

You must then also file a copy of the form with the IRS via mail or e-filing.

IRS Form1099 Due Date to RecipientsFiling to IRS by MailE-Filing to IRS
1099-NECJanuary 31February 1January 31
1099-MISCJanuary 31March 1March 31
1099-INTJanuary 31March 1March 31
1099-DIVJanuary 31March 1March 31

For always updated information about the deadlines please check the IRS website.

If you as a business fail to issue a Form 1099-NEC or 1099-MISC by the deadline, the penalty can vary from $50 to $290 per form, depending on how late you issue the form.⁴

The maximum penalty for failing to file 1099s timely is approximately $500,000. 

How to fill out a 1099 Form?

If you’re a business owner, or self-employed and you’re paying a contractor you need to fill out Form 1099 yourself, one copy for the contractor and another for the IRS. 

A 1099 Form can be filled out by you manually, but you can also get some help using tax softwares such as QuickBooks.

Alternatively, a 1099 Form can be filled out by a tax professional such as a certified public accountant, agents, attorneys, and bookkeepers. 

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1099 Reporting requirements - for different types of 1099 Forms

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As a business you should expect to file/fill out a specific type of 1099.

Let’s look at each one in a little more detail to understand the reporting requirements and what information you’ll need to provide.

1099 - INT

A 1099-INT is used to report any interest income earned by your customers, contractors, etc. and is generally issued when they have earned over $10 of interest. 

1099-INTs are typically issued by  banks, brokerages, or other financial institutions. Usually, the form is mailed by you, but some institutions may issue it online instead.⁵

1099 - DIV

If you’ve paid or your customers have earned dividends or distributions during the year you will need to issue a 1099-DIV. 

This also applies to each person to whom you have paid $600 as part of a liquidation.⁶

1099 - MISC

A 1099-MISC Form is used when you pay:

  • At least $10 in royalties or broker payments

  • At least $600 in rents, prizes, awards, payments, or other streams of income

  • At least $5,000 from reselling consumer products to buyers⁷

Other types of 1099 Forms

1099 - A and C:
If you are a financial institution and your customer experiences foreclosure, you will provide a 1099-A. 

A 1099-C Form is issued when a debt is canceled, forgiven, or discharged as it becomes taxable income by you.⁸

1099 - B:
Brokers or barter exchanges file a 1099-B for each person that the broker has sold stocks, commodities, and other types of securities and assets for cash. 

Brokers must also file a 1099-B if they have facilitated or administer payments of  cash, stock, or other property from corporations they know have undergone substantial capital structure changes or have gone through an acquisition.⁹ 

1099 - CAP:
Provided to shareholders of a corporation if there is a significant change in capital structure. 

The 1099-CAP is issued to shareholders if they receive cash, stock, or other property after an acquisition or major change to the corporation.¹⁰

1099 - OID:
Filed when bonds or certificates of deposits are sold at a discounted rate based on their maturity value. 

A 1099-OID will be issued by the brokerage firm that holds the bonds or certificates of deposits.¹¹

1099 - PATR:
Used to report taxable distributions received from cooperatives, patronage dividends, and other lesser-known sources of money.¹²

1099 - NEC:
Any nonemployee compensation (i.e., independent contractor payments) paid  is reported through this form, such as income paid to a contractor.¹³

1099 - S:
Used to report the sale or exchange of real estate including residential, commercial, industrial buildings, condominiums, share in cooperative house corporations, and any other land transactions.¹⁴

Manage your tax payments with ease - choose Wise Business

Working through tax season, all the reporting requirements can be confusing and feel overwhelming.  

If you have a US tax liability, you can use Wise to make managing your payments easier. 

With Wise Business you can get access to US Dollar account details meaning you can pay your taxes directly to the IRS from anywhere in the world without having to step foot into a physical bank. 

If you’re eligible for a tax refund from the IRS, you can also receive payments using your Wise USD account details.

Also, with your Wise multi-currency account you can easily keep track of all your payments, making tax reporting easier. 

Join Wise Business today

Sources:

  1. IRS - General Instructions for Certain Information Returns
  2. IRS - Forms 1099-MISC and 1099-NEC
  3. IRS - January 31 Wage statement deadline reminder for employers
  4. IRS - Information Return Penalties
  5. IRS - Form 1099-INT
  6. IRS - 1099-DIV
  7. IRS - Form 1099-MISC
  8. IRS - Form 1099-A and Form 1099-C
  9. IRS - Form 1099-B
  10. IRS - Form 1099-CAP
  11. IRS - Form 1099-OID
  12. IRS - Form 1099-PATR
  13. IRS - Form 1099-NEC
  14. IRS - Form 1099-S

All sources checked 31 March 2022


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