A 1099 form is known as an ‘information return’. The information is of a financial nature and basically covers income the recipient of the form has received as calculated by the sender whether a financial institution, a company they may have done some freelance or contracted work for, the a result of a property sale, and various other categories.
1099 forms cover various types of income, and the appropriate 1099 for the particular type of income is indicated by a suffix such as ‘MISC,’ ‘B,’ ‘R’, ’S’, ‘SA’, and more.
A common type of 1099 form is the 1099-MISC type issued to contractors, freelancers or anyone who isn’t an employee undertaking work for a business or organization. It’s likely most companies would have pre-printed 1099 forms as part of a suite of IRS (Internal Revenue Service) related paperwork used in financial admin ready to issue to relevant people.
The difference between 1099 and W-2 forms
As said above, 1099-MISC forms report income paid to those not directly employed by a company; the W-2 on the other hand is issued to employees and shows a record for that year of what they’ve been paid and what tax and other deductions have been made.
Recipients of a 1099-MISC form are likely to be self-employed, so they have to take the income reported on the 1099 as the official record of payment and – along with other 1099 forms they may have received elsewhere to record other sources of income – use them to calculate their tax liability.
Other 1099 forms
There are many variants of the 1099 form; along with the MISC type, other 1099 forms cover other income sources ranging from property sales, bank interest payments, share sales, dividend payments, tax credits, refunds and more.
The issuing of a 1099 doesn’t automatically mean you have a tax liability; it’s simply a way of reporting financial gains of various types – even something like debt canceling – to the IRS (they receive a copy of any 1099 forms issued to you).
The fact the 1099 informs the IRS along with yourself of financial information is key; your records must match what the IRS know from your 1099 forms or they’ll ask you to explain any discrepancies or maybe subject you to an audit.
Your financial paper trail
The 1099 form is literally part of your financial paper trail for the accounting year and builds a picture of what income you may have received from various sources. You would report this information in the relevant parts of your tax return.
The ‘1099 economy’
As of 2017, the Bureau of Labor Statistics reported that some 7.5 million Americans had more than one job, and such is the nature of work patterns more people are working for themselves or at least in ways that mean they’re given 1099-MISC forms as opposed to a W-2 an employee receives; it’s well over 30% of the American workforce according to Forbes so causing the ‘1099 economy’ to become a catchphrase.
The 1099 isn’t exactly new; it actually dates back to 1918 when the IRS created the first 1099 to be used for the 1917 tax year. It’s still going strong, though, and shows no sign of losing its importance.