What is an IRS 1099 Form?: Everything you should know about information returns
When you start a small business, you take on a world full of new (and occasionally intimidating) tax forms, bookkeeping, and other responsibilities. With all this new accounting and tax jargon coming at you, it’s easy to get confused and frustrated. After all, we highly doubt you started your business because you just love tax forms.
Not to mention, resources like the Internal Revenue Service (IRS) website don’t do a whole lot to clarify or explain things in a digestible way (#noshade).... And we all know the IRS is far from the only website that struggles to make tax forms make sense to most small business owners.
In this guide, we’re talking about 1099 forms. We’ll simplify all that comes with launching and running a small business that earns money, pays employees or contractors, and sends or receives tax forms. Specifically, we cover:
- What 1099 forms are (plus the many variations)
- Why small businesses need to know about 1099 forms
- How to figure out if you need to file a 1099 form (and which one)
- When and how to fill out and file 1099 forms
What is a 1099 Form?
If you’re in a rush, here’s the gist:
- Income, either earned or paid, is reported on 1099 forms
- 1099s are filed annually
- Generally speaking, anyone who pays another individual or business $600 or more (aside from salary) throughout the year needs to file
Put simply, 1099s are a series of tax documents known as “information returns.” The IRS uses these forms to keep track of the income individuals earn outside of their regular salary. As Nerdwallet puts it, “A 1099 tax form is a record that an entity or person—not your employer—gave or paid you money.” The IRS will consult every 1099 you receive with your tax return to make sure everything adds up.
There are a lot of ways to earn income outside of your regular salary, commissions, and bonuses. The IRS is keen to keep track of all that other income so they can ensure you pay the appropriate income tax on it. In a nutshell, that’s what all 1099 forms are designed to do—help the IRS keep track of additional income earned.
If you’ve recently done work for another business, then you may receive a 1099 tax form. If you’ve hired a freelancer, contractor, or someone for work, you may need to provide them with a 1099 tax form. We’ll touch more on this in the sections down below, so hold tight.
Who receives a Form 1099?
There are so many different scenarios where you might receive a 1099 tax form. Generally speaking, you can expect to get a 1099 Form if you’ve earned over $600 in income from sources other than your main employer.
You’re responsible for including and filing any 1099 forms you receive as part of your own annual tax return. For example, if you are an independent contractor, you’ll file all 1099-NEC forms you receive from clients as part of your annual tax return.
Who sends IRS 1099 forms?
Again, with all the different types of 1099s, it can be hard to make blanket statements about who does or doesn’t need to submit one. But in short, if you paid someone $600 or more for anything other than sales or full-time or part-time employment, you may have to file a 1099 form.
Here are the most likely scenarios small business owners may encounter, and the 1099 form variation they require (detailed info about each form can be found later in this article, don’t worry!):
- If you worked with an independent contractor or freelancer (and paid them $600 or more), you’re responsible for submitting Form 1099-NEC to the IRS and sending a copy to the contractor. Note: You’ll fill out and file a separate 1099-NEC for each freelancer to whom you paid $600 or more.
- If your company sells shares and you paid dividends or other distributions to shareholders, you’re responsible for submitting Form 1099-DIV and sending a copy to the IRS and each shareholder.
For real estate businesses, you’re responsible for submitting Form 1099-S for each sale of real estate property made throughout the year. However, if you use a title company or attorney to close the sale, they’ll usually handle this part for you.
When are the Form 1099 deadlines?
Let’s use 1099-NEC as an example here since it’s one of the most commonly encountered tax forms for small business owners. If you’re responsible for sending a 1099-NEC form to independent contractors, you’ll need to ensure the person paid gets their 1099-NEC by January 31 of the following tax year.
You’ll also need to send Form 1099-NEC to the IRS by March 31 (when filed electronically). If you choose to fill out and file your 1099 forms on paper and submit by mail, the deadline is February 28 (make sure the envelope is postmarked with the date!).
Thankfully, the majority of 1099 forms are fairly straightforward to fill out. You can find specific instructions from the IRS on filling out common 1099 variations below:
This means that if you’re receiving a 1099, you’ll get it by January 31, which is fairly early in the tax season. 1099s are sent out so early to give you more time to prepare your tax return. You’ll file your tax return by the usual tax filing deadline.
The most common IRS 1099 forms for small business owners
As a small business owner or someone who’s self-employed, you’re very likely to end up both receiving and sending some variation of a 1099 tax form. We won’t tell you that you need to memorize more than 20 forms and what they’re used for, but it is important to develop an understanding of the more common 1099 variations so you’re not caught off guard if (or when) you get one.
In total, the current 1099 series includes quite a few forms (get ready for this, it’s a lot):
- 1099-A, Acquisition or Abandonment of Secured Property
- 1099-B, Proceeds from Broker and Barter Exchange Transactions
- 1099-C, Cancellation of Debt
- 1099-CAP, Changes in Corporate Control and Capital Structure
- 1099-DIV, Dividends and Distributions
- 1099-G, Certain Government Payments
- 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments
- 1099-INT, Interest Income
- 1099-K, Payment Card and Third Party Network Transactions
- 1099-LS, Reportable Life Insurance Sale
- 1099-LTC, Long Term Care and Accelerated Death Benefits
- 1099-MISC, Miscellaneous Income
- 1099-NEC, Nonemployee Compensation
- 1099-OID, Original Issue Discount
- 1099-PATR, Taxable Distributions Received from Cooperatives
- 1099-Q, Payments from Qualified Education Programs
- 1099-QA, Distributions from ABLE Accounts
- 1099-R, Distributions from Pensions, Annuities, Retirement Plans, IRAs, etc.
- 1099-S, Proceeds from Real Estate Transactions
- 1099-SA, Distributions from an HSA
- 1099-SB, Seller’s Investment in Life Insurance Contract
- SSA-1099, Social Security Benefit Statement
- RRB-1099, Payments by the Railroad Retirement Board
- RRB-1099-R, Pension and Annuity Income by the Railroad Retirement Board
The IRS uses so many types of 1099 forms because there are a lot of ways to earn income outside of your regular salary—and each form reports a different type of income. For our purposes, we’ll stick to the versions small business owners and self-employed people are most likely to come across regularly, which include:
- 1099-DIV
- 1099-INT
- 1099-K
- 1099-NEC
What is Form 1099-DIV?
As the name implies, Form 1099-DIV is how corporations, shareholders, and the IRS keep track of dividends and other distributions paid from a company to its shareholders. If you own shares in a company that distributes dividends, you should receive Form 1099-DIV from them by January 31.
Similarly, if your business sells shares and pays dividends to shareholders, you’re responsible for filing Form 1099-DIV and sending a copy to each shareholder before January 31. The typical deadlines to submit Form 1099-DIV is by February 28 if mailed in and by March 31 if filed online.
What is Form 1099-INT?
Form 1099-INT is designed to report on interest income (above $10) earned and paid over the course of the year. Banks, for example, often give 1099-INT forms to customers who earn interest on the money they keep in accounts there. If you’re sending a 1099-INT it’s also due to the recipient by January 31 and due to the IRS by February 28 if mailed in or March 31 if filed online.
As a small business and employer, you’re more likely to deal with 1099-INT forms as a recipient for the interest earned on any business or personal bank accounts.
What is Form 1099-K?
Form 1099-K is one form that the majority of small business owners need to be aware of. If you accept payments from clients and customers via credit card and/or through a third-party payment processor, you may receive a 1099-K form by January 31. For example, if you invoice clients and accept credit card payments through Wave and made over $20,000 in a calendar year, you will receive a 1099-K from us.
As of now, payment processors and credit card companies are required to send 1099-K forms to anyone who processed more than $20,000 and over 200 transactions. It’s due to the recipient by January 31 and to the IRS on February 28 (if mailed) or on March 31 (if submitted online).
Starting January 2024, any person or business who receives total payments above $600 in a given year from credit cards or third-party processing payment providers will receive Form 1099-K, regardless of the number of transactions. If you want to learn more about the 1099-K and the new requirements starting 2024, we have an entire blog post covering everything you need to know.
What is Form 1099-NEC?
In the world of self-employment, Form 1099-NEC is often one of the most common. Freelancers, for example, receive 1099-NEC forms by January 31 from any clients who paid them $600 or more during the prior year. The 1099-NEC is essentially the freelancer’s version of a W-2 form.
As a small business owner, if you work with independent contractors or freelancers, you may be responsible for both receiving and submitting 1099-NEC forms. You’ll need to submit them to the recipient by January 31 and to the IRS by February 28 through mail OR March 31 online.
IRS Form 1099-NEC vs. IRS Form 1099-MISC
If you’re unsure about what the difference is between 1099-NEC and 1099-MISC, that’s totally understandable.
Before 2020, you would’ve received a 1099-MISC if you were a freelancer who completed contracted work. (And, likewise, if you hired a freelancer, you would send them a 1099-MISC.) After that, the IRS replaced the 1099-MISC with the 1099-NEC for reporting non-employee compensation. 1099-MISC is still used in some instances, like for rent or awards/prizes, but 1099-NEC is now the go-to for freelancers and contract workers.
The 1099-MISC, for the most part, has the same deadlines as the 1099-NEC. The only difference is you may be able to send the 1099-MISC to the person paid by February 15 (instead of January 31) under certain circumstances.
The other types of 1099 forms
We’re coming in full swing with these other 1099 forms now. Remember, you don’t need to memorize every single form: just take what you need. A bunch of these may apply to you, or none at all.
What is Form 1099-A?
Form 1099-A, Acquisition or Abandonment of Secured Property is used to report on canceled debt, specifically foreclosure on a property if you canceled some or all of your mortgage.
- Due to the person paid: by January 31.
- Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
What is Form 1099-B?
1099-B, Proceeds from Broker and Barter Exchange Transactions records any gains and losses.
- Due to the person paid: by February 15 (sometimes March 15 in special circumstances).
- Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
What is Form 1099-C?
Form 1099-C, Cancellation of Debt, as its name suggests, reports on debt that was canceled or forgiven.
- Due to the person paid: by January 31.
- Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
What is Form 1099-G?
Form 1099-G, Certain Government Payments, informs you of any income received from the Department of Revenue, like unemployment or tax refunds.
- Due to the person paid: by January 31.
- Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
What is Form 1099-LTC?
1099-LTC, Long-Term Care and Accelerated Death Benefits, lets you report any long-term care benefits, including accelerated death benefits.
- Due to the person paid: by January 31.
- Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
What is Form 1099-OID?
1099-OID, Original Issue Discount reports on the interest from certain bonds that are worth more now than they were at the time they were issued.
- Due to the person paid: by January 31.
- Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
What is Form 1099-Q?
You’ll get 1099-Q, Payments from Qualified Education Programs, if you receive distributions from a Coverdell education savings account (ESA) or a 529 plan.
- Due to the person paid: by January 31.
- Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
What is Form 1099-QA?
1099-QA, Distributions from Achieving a Better Life Experience (ABLE) Accounts, reports on any distributions from an ABLE account.
- Due to the person paid: by January 31.
- Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
What is Form 1099-R?
1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc., is a mouthful. You’ll get one if you receive a distribution over $10 from retirement plans, pensions, and any of the accounts included in the name.
- Due to the person paid: by January 31.
- Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
What is Form 1099-S?
1099-S, Proceeds from Real Estate Transactions, is used to report on income received from the sale or exchange of real estate.
- Due to the person paid: by February 15.
- Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
What is Form 1099-SA?
1099-SA, Distributions from an HSA, Archer MSA, or Medicare Advantage MSA, reports on funds from tax-advantaged health care savings plans.
- Due to the person paid: by January 31.
- Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
What is Form 1099-SSA?
1099-SSA, Social Security Benefit Statement, records any benefits you receive from Social Security.
- Due to the person paid: by January 31.
Due to the IRS: by February 28 through mail, or by March 31 if submitted online.
How to submit 1099 forms
When the time comes to submit the applicable variation of Form 1099, you have a few options to choose from:
- E-file online
- Mail in your form
- Work with an account to file for you
- Any combination of the above
Note: Whichever you choose, it’s important to remember that you are also required to send a copy of the appropriate 1099 form to anyone you paid. Let’s go over the three options now:
E-file online
This is the method of filing that the IRS prefers. According to their website, it’s:
- Faster
- More accurate
- More secure
As a result, most small business owners opt to E-file. In order to file Form 1099 (or another IRS tax form) online, you’ll need to use the IRS Filing Information Return Electronically (FIRE) system. The IRS also offers lists of approved software and authorized e-file providers to help you file.
Mail in your form
Small businesses and employers also have the option to mail in Form 1099.
To do so, you’ll need to print the applicable Form 1099, plus Form 1096, which acts as a cover page for each group of 1099s. You’ll mail this to the corresponding address for your state. You can find the correct mailing address on page 7 of the General Instructions for Certain Information Returns, which is updated yearly and can be found on the IRS website.
Work with an accountant to file for you
Your last, and often best, option for filing 1099 forms is to work with a tax professional or CPA. Tax professionals can both fill out and file any necessary variation of Form 1099 and will also fill out and file the applicable 1096 form, if needed.
What is the difference between a 1099 Form and Form W-2?
Let’s touch on Form W-2 now. At this point, you may be wondering what the difference is between a 1099 form and a W-2 form—classifying your employees and sending them the right forms can definitely get confusing. Basically:
- W-2 forms go to full-time or part-time employees, and are due by January 31. A W-2 is used by companies to report the total income paid to an employee, as well as any taxes that were withheld.
- 1099s (most likely 1099-NEC) go to any independent contractors, self-employed person, or freelancer (also known as a “1099 employee”).
So, now you’re probably wondering: What’s the difference between an employee and a 1099 employee? Let’s take a closer look below.
What is a 1099 employee?
Like we said, a “1099 employee” refers to an independent contractor, self-employed person, or freelancer. What makes 1099 employees different from “normal” employees? Business owners will withhold and pay income taxes, social security taxes, and pay unemployment tax on wages paid to an employee; they do not have to withhold or pay taxes on payments to 1099 employees.
The IRS also outlines “Common Law Rules” in distinguishing employees from 1099 employees. In the case of an employee, these three considerations will likely be met:
- Behavioral: the company has the right to control what the employee does.
- Financial: the company controls how and when the employee is paid, how tools are supplied, and what expenses get reimbursed.
- Type of relationship: there will be written contracts or employee benefits (like pension plans and vacation pay) for employees.
IRS 1099 forms: Closing notes
We know we covered a lot of 1099 variations here. Don’t worry—you don’t need to remember (or even care about) every single form, just keep whatever is relevant in mind. To sum up, here are the main points small business owners and employers should remember:
- 1099 forms report any income paid or received outside of traditional employment.
- If you pay independent contractors or freelancers, you must file Form 1099-NEC for annual payments of $600 or more.
- If your business has shareholders who receive dividends or other distributions. throughout the year, you must file Form 1099-DIV for each shareholder.
- Payment processors and credit card companies will send 1099-K forms to anyone who received more than $20,000 in payments (comprising over 200 individual payments). Starting in 2024, this amount will be changed to $600, regardless of the amount of individual payments.
Okay, shameless plug time: A good way to make tax season even easier is through Wave Payroll. With Wave Payroll, you can pay independent contractors and employees—and seamlessly generate W2 and 1099 forms for tax season— with 100% guaranteed accuracy and less work for you!