What is a 1099 Tax Form and How to File Taxes with it?

What is a 1099 Tax Form and How to File Taxes with it?

Do you know what is a 1099 tax form used for and how to file taxes with IRS form 1099-MISC? If no, we are here to enlighten you. In this guide, we will discuss Form 1099-NEC, its types, and the difference between and W2 forms.

Furthermore, you will learn the procedure of getting and filing the 1099 form including the online version, and a lot more. Without any further delay, let’s know what is a 1099 tax form used for.

What is a 1099 Tax Form Used For?

Form 1099 is an information filing form used to inform non-salary incomes to Internal Revenue Services (IRS) for federal tax purposes. There are 20 types of 1099 forms in which 1099-NEC is used commonly.

Types of 1099 Forms

One can make money from prize winnings, tax dividends, IRA distributions, interest income, state tax refunds, the sale of personal property, credit card debt forgiveness, or miscellaneous government payments.

There are different kinds of 1099 tax forms you should be aware of:

1099-A1099-B1099-C1099-CAP1099-DIV
1099-G1099-INT1099-LTC1099-NEC1099-OID
1099-PATR1099-Q1099-R1099-S1099-SA

All these forms are used depending on what kind of income you have and how much you received during the entire year.

What is 1099-NEC?

Form 1099-NEC is a record to inform Internal Revenue Services (IRS) that you have paid $600 or more to an independent contractor or other self-employed people (throughout the year). The payer fills this 1099 form and shares the copies with the IRS so that the IRS uses these details to verify your income independently.

However, an independent contractor does not need to fill out 1099-NEC. In case you don’t get a copy of 1099 from your client then you need to follow up with them. In addition, independent contractors are required to report the income on Schedule C even if it is under the range of $600.

Difference Between 1099 and W2 Form

Most users get confused between W2 or 1099 forms. Let’s understand the difference.

Form 1099 is completely different from W2 form. It is important for the payroll functions while W2 form contains information related to the salary and medicare taxes of the employees. The W2 form also contains information on tax deductions from paychecks. This can be helpful for the employees especially when they are preparing for tax returns.

On the other hand, if you receive the form 1099, it indicates your employer marked you as an independent contractor instead of an employee.

Where Can I Get a 1099 Tax Form?

If you are wondering who needs to get this 1099 tax form, we will help you to understand the concept.

First of all, anyone can get this form 1099 to record their income. However, the reasons can be different for getting the 1099 form. For example:

  • Independent contractors and freelancers often receive the 1099-NEC and 1099-MISC from their clients. This shows the money that your client has paid to you or an independent contractor.
  • Form 1099 has the taxpayer identification number or social security number which indicates the IRS can also know you have received the money. Moreover, the IRS can find out if you do not report the income on the tax return.

How to Fill Out a 1099 Tax Form?

There are two different copies of Form 1099; Copy A and Copy B. You can use the 1099- A and 1099- B forms based on different circumstances.

For instance, if you hire an independent contractor, you should report what you are paying them on Copy A and send it to the IRS. Along with this, you should also report the same details on Copy B and share them with the contractor.

On the other hand, if you are an independent contractor and receiving the form 1099 (Copy B) from your client then it is not required to share it with the IRS. You can report your income listed on Copy B on the personal income tax return.

If you want to learn how to file taxes with no income or with income IRS form 1099-MISC then you can perform the following steps one by one.

Part 1: Collect the Relevant Information

Before you complete and submit your form 1099, you should gather the following details for each contractor. For example:

  • The amount you paid the contractor during the tax year.
  • Address
  • Legal name
  • Taxpayer identification number or social security number unless they are a resident or non-resident aliens.

The best method to acquire the information is to make your contractor fill out form W-9. It is also vital to have form W-9 on file for every single independent contractor. Filling out a W-9 form is one of the essential administrative tasks that should be done right after you engage their services.

Furthermore, you should check the bookkeeping records in order to confirm the amount you paid to your customer through the tax year.

After you gather all the necessary information, you can use them to fill out the form 1099-NEC.

Part 2: Submit Copy A to Internal Revenue Services

Submit Copy A to Internal Revenue Services

Form 1099-NEC (Copy A) should be sent to the IRS electronically or via email. Remember that when you file the form 1099-NEC physically, you will not be able to download or submit the printed version of 1099-NEC (Copy A) from the IRS website.

Rather, you can acquire Form 1099-NEC, fill out the form (Copy A), and send it to the IRS via email.

Part 3: Submit Copy B to Independent Contractor

When you are done completing the form 1099-NEC, you can send Copy B to all the independent contractors of yours. Make sure you send it before January 31.

In addition, you can take prints or download Copy B directly from the IRS website. Also, send the Copy B to each of your independent contractors.

Part 4: Submit 1096 Form

If you file a copy of 1099-NEC (Copy A) physically to the IRS then you have to complete and file the 1096 form.

Once you do so, the IRS will use this form 1096 to track every form 1099 you file throughout the year. The deadline for these forms 1096 is January 31.

Part 5: Verify If You Need to Submit Form 1099 with Your State

You can submit form 1099 with the state based on the position of your business. Make sure you check in CPA and complaint with the requirement of the 1099 form for your state.

How to Make 1099 Tax Form Online?

To file the form 1099 online, you can perform the steps based on a version of form 1099 such as Copy A and Copy B.

File Copy A: If you want to file Copy A of the 1099-NEC form then you can do it through the IRS Filing a Return Electronically system. Make sure that you generate this form using the compatible accounting software.

Before moving forward to use the FIRE system, one will have to use the Transmitter Control Code (TCC). To request TCC, you can file form 4419 then send an email or fax to IRS. You can submit this form 30 days prior to the tax deadline for the 1099-NEC form. When the IRS tries to connect you with TCC, you can create your account with FIRE.

File Copy B: Before emailing Copy B to the contractor, you will have their consent. The consent should be acquired in a way that justifies that your contractor can get the form electronically. In case you plan to email them a copy of the form then you should send the email to receive the consent.

Rules for Requesting for Consent

If you want to request consent then you should comply with the IRS rules. It includes the following:

  • Recipients will receive the paper in case they don’t consent to receive the electronic copy.
  • Verify if they agree to receive the electronic copy of the form this year or every calendar year in which they work.
  • Instruct them how to request a copy from you even after they give you the consent to receive the electronic copy.
  • The description for software and hardware they have to view or print the form.
  • The entire procedure for updating the details with you.
  • Instruct them to withdraw content if needed. Users can withdraw consent by writing in paper or electronically. You also need to confirm the withdrawal in writing.
  • Add the date on which the form won’t be available.

When you receive the consent from your contractor, you can send them a Copy of B via email. A few services such as Gusto can make this procedure less labor-intensive because such services request filing consent electronically from all the contractors.

Where to Report Form 1099 A on Tax Return?

If you receive the 1099-A form and are wondering where to report this then we will guide you. Whether the property is used or unused for any business, you can perform the steps accordingly.

If the property is not used for any business, do the following:

  • Go to:
    • Federal Section
    • Income-Select My Forms
    • Capital Gain and Losses
    • Capital Gains and Loss Items
  • The Acquired date should be the original purchase date.
  • The Sold date is the date that is listed in Box 1 of your Form 1099-A.
  • The Sales price is the amount in Box 2 or Box 4 either. You can verify it with your taxing agency in your state.
  • The cost is the price of the original purchase or cost basis in the property. You can find this on the HUD-1 closing statement that you get when you buy the property.

In case the property is used for a business, e.g., the rental property then you can follow these steps:

  • Go to:
    • Federal Section
    • Income-Select My Forms
    • Less Common Income
    • Sale of Business Property Form 4797

In case your property is excluded and you are receiving the 1099-C form instead of the 1099-A form then this information will be considered as Cancellation of Debt. Besides that, it should be reported by following these steps:

  • Federal Section
  • Income-Select My Forms
  • Less Common Income
  • Cancellation of Debt Form 1099-C, Form 982

What If You Don’t Get the Form 1099 from Client?

This is the responsibility of your client to send you a copy of the 1099-NEC form. However, there can be instances when you receive the form from your client.

In case you don’t get the Copy B of form 1099 from the client by the last date then you can request it. Because you will need this in order to file the income tax in April.

Note: Whether you receive the 1099-NEC form, you should report all the income that you earned on the tax return.

What If You Miss the Deadline for 1099 Filing?

Even if you miss out on the last day of filing the tax, you can still file it. However, you need to pay the penalties set by the IRS.

  • If you file within 30 days, pay $50.
  • If you take more than 30 days to file, but before August 1, you need to pay $100
  • Pay $260 in case you file on/after August 1.

Note: If you fail to file taxes intentionally then this can be subject to the minimum penalty of $530 per statement. Also, the penalty amount depends upon how you file the correct information return.

In case you are unable to file on time then you can request the extension. For this, you can use IRS Form 8809. But remember this cannot be extended after January 31 for sending the copy of form 1099 to independent contractors. IRS extended tax day for treasury from 15th April to 17 May 2021

To Wind Up

Form 1099 is mandatory to use in order to inform your non-salary income to Internal Revenue Services (IRS) for federal tax purposes. For your keen information, we have discussed the whole procedure of what is a 1099 tax form used for and how to file taxes with IRS form 1099-MISC.

We have also talked about where you can report the form 1099 A on the Tax return. But remember, you should be aware of the due dates, penalties (when you miss the deadline), and other conditions such as when you don’t get the form by due dates.

Apart from the 1099 form, if you want to know what is a 1099 R tax form and how to report it, you can read this detailed guide.

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