What Is Form 1099? It Reports Payments Other Than Regular Salaries, Wages or Tips
All 1099 forms are Internal Revenue Service forms used for filing taxes. They are used by companies to report payments that aren’t included on a W-2 form.
The wages, salaries and tips of your employed staff go on a W-2 form. Just about every other payment has a 1099 form – choosing which one depends on what the payment was for, and the type of payment made.
Any 1099 is generated by the payer, a copy must be sent to the payee by January 31st and filed with the IRS by their stated deadline. They’re based on the business transactions of the previous year and are part of tax return calculations.
Recently, the Internal Revenue Service (IRS) has changed some of the 1099 rules. The ones that are most relevant to FreshBooks customers are detailed below.
Here’s What We’ll Cover:
What Is the Difference Between a 1099 form and form W2?
Can I Get a Tax Refund with a 1099 Form?
How Much Money Do You Have to Make to Get a 1099 form?
How Do I Send 1099 Forms to the IRS?
Does a 1099 Form Mean I Owe taxes?
FreshBooks Top 1099 Tax Form Tips
NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.
New 1099-NEC Form
Welcome to the new 1099-Non-Employee Compensation form. This is for you to report how much you’ve paid independent contractors during the course of the previous tax year.
It applies to any freelance, sole proprietor, Limited Partnership (LP), single member Limited Liability Company (LLC), or estate that you hire. If your total annual payments are over $600, then you need to complete a 1099-NEC. One 1099-NEC for each individual self-employed, independent contractor. It doesn’t apply to S-Corp or C-Corp companies.
New Deadline Alert!
There’s a new deadline of January 31st – they must be filed with the IRS by this date, and you need to get a copy to your contractors. They need this information to complete their tax return.
Everyone can file tax form 1099-NECs digitally using the IRS’s Filing Information Returns Electronically (FIRE) system. And if you’ve got more than 250 1099-NEC forms to file, you must file online. There’s a hefty $2,500 fine if you use paper instead.
If you have less than 250 1099-NEC forms, you can download the pdf here to complete, print and send in the mail.
Old Favorite – 1099-MISC Forms
Yes, you’re right, independent contractor information used to go on your 1099-MISC forms. Now these payments are separated out into form 1099-NEC. But you still need to check if you also need to complete a form 1099-MISC.
Although the shorthand ‘1099-MISC’ is the same, the IRS has renamed this form from ‘Miscellaneous Income’ to ‘Miscellaneous Information’. It applies to payments, totaling over $600, for:
- Rent
- Cash prizes and awards
- Other income payments
- Medical and health care payments
- Attorney payments
- Crop insurance proceeds
- Cash payments for purchase of fish from commercial fisher
- Fishing boat proceeds
- Cash paid to an individual, partnership or estate from a notional principal contract
If you need to file a 1099-MISC form, you can find it here on the Internal Revenue Service’s website.
Other Common 1099 Forms
1099-K
A 1099-K form reports payments that are made by debit card, credit card and through third-party payment processors (like PayPal).
The financial institution or third-party network is responsible for filing 1099-Ks with the IRS and sending you a copy to reconcile with your records.
There’s a new, much lower payment threshold for 1099-K forms. Now, if your annual total transactions are over $600, you will receive a 1099-K. And there’s no minimum number of transactions.
What's Changed About This 1099 Form?
Before 2022, the threshold was $20,000 and there had to be a minimum of 200 transactions before payment processors needed to complete a form 1099-K. This means more paperwork for the third-party payment providers and a lot of small businesses suddenly receiving a new 1099 form from January 2023.You’re declaring the same income you were before, a 1099-K is just a new way of communicating this data.
If that’s you, don’t worry, this FreshBooks’ guide has all the details.
1099-R
Form 1099-R is required when distributions greater than $10 have been made from a:
- Pension plan
- Annuity
- Retirement plan
- Survivor income benefit plan
- Insurance contract
- Charitable gift annuity
- Profit-Sharing plan
- Individual Retirement Account (IRA)
- A form 1099-R is also required for permanent and total disability payments, under a life insurance contract.
Do I Have To Fill In 1099-R Forms?
No, this type of 1099 form isn't your responsibility. 1099-R forms are issued by the plan providers. They are responsible for filing this tax form with the IRS and sending you a copy. You include the form 1099-R information in your income tax return calculations.
1099-INT
The INT stands for ‘Interest’ on this 1099 form. A form 1099-INT is for reporting any taxable interest income, over $10.00, from savings accounts and checking accounts. And for interest paid on treasury bills and savings bonds.
Who Completes 1099-INT Forms?
1099-INT forms are completed by the financial institutions and sent to the IRS and their investors at the end of each year. You use this information to include any taxable interest income on your tax return.
What Is the Difference Between 1099 Forms and Form W2?
W2 and 1099 forms are for two separate groups of people in your business – those you directly employ and independent contractors.
W2 Form
You must fill out a W-2 form for each of your employees. It includes:
- All their wages, salaries and tips
- Total income earned
- All taxes withheld, including to Medicare and Social Security
Your business completes the W-2 forms and sends them to the IRS and each employee. The information on their W-2 allows your employees to calculate their own personal income taxes. This means they know if they owe the IRS, or if they’re due a tax refund.
1099-Form
There’s a form 1099 for payments to everyone else. Typically, there are no deductions listed on 1099 forms because the person receiving the form isn’t an employee.
Can I Get a Tax Refund With a Form 1099?
No, 1099 forms aren’t for claiming tax refunds. They report income, which may result in a higher tax bill, not decreased tax or a refund. 1099 forms help taxpayers to complete their personal income tax returns accurately. And that’s where you might discover you’re owed a tax refund.
How Much Money Do You Have to Make to Get a 1099?
The IRS requires businesses to issue 1099 forms if they make a total business payment of more than $600 in that tax year. For example, as a payee, you’ll receive a copy of that particular 1099-NEC or 1099-MISC. How much income you receive doesn’t have any bearing on whether or not you get 1099 forms.
The crucial factor is that you must report all the money you earn to the IRS. Whether you get 100 1099 forms, or zero.
How Do I Send 1099 Forms to the IRS?
All 1099 forms, apart form 1099-QA, can be filed electronically through the IRS FIRE system. This dramatic acronym stands for the more mundane ‘Filing Information Returns Electronically.'
The 1099-QA form is for people with disabilities who have an Achieving a Better Life Experience (ABLE) account. They must be filed on paper.
You are legally required to use FIRE if you’re filing more than 250 1099 forms for a tax year. In fact, the IRS encourages everyone to use electronic filing, even though you can still use the paper option if you’ve less than 250 forms.
You must complete a 1096 form as a summary of the 1099 tax forms you are submitting. A 1096 form shows the total number of forms, total amount being reported and total tax withheld.
Does a 1099 Form Mean I Owe taxes?
Receiving a 1099 form isn't the same as getting a tax bill. It doesn't necessarily mean that you have to pay taxes. The information on all types of 1099 forms is for you to use during tax time at the end of the tax year. It may be showing taxable income that you must report as income received on your tax return.
FreshBooks Top 1099 Tax Form Tips
Tax season is already much less stressful and time consuming with your FreshBooks account. As a self employed business, you might need to take several types of 1099 forms into account. But this doesn't make your tax situation more complex - it's just another record of income earned.
- Get help from a tax professional
- We've got lots of free tax help in our US Tax Hub
- Use the information on the IRS website
- Electronically file your tax returns
- Make a tax plan
The last point is really important. If you build tax form requirements into your business schedule it'll streamline everything beautifully.
For example, make sure you've got a Taxpayer Identification Number for every independent contractor by getting them to fill in a W9 at the start of your working relationship. And check with your state tax department to see what their additional tax requirements and deadlines are.
And if you're self-employed, make sure which IRS form you're expecting to get from which company, financial institution, or third-party payment network. If these definitions are part of your usual recording process, it'll be easy to check and chase a missing 1099 form at tax time.
All your business information is there, at your fingertips, in your FreshBooks account. So you’ve already saved the time you need to figure out which type of 1099 form you need for your tax situation.
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