Understanding the Different Types of 1099s
The various 1099 forms capture what the IRS considers “information reporting.” In addition to the well-known 1099-MISC to report income to independent contractors or freelancers, there are 1099 forms for interest and dividends, government payments, withdrawals from retirement accounts and more.
The most common 1099 form, the 1099-MISC is used to report payments of at least $600 to any service provider who isn’t an employee. Basically, the 1099-MISC form is to independent contractors and freelancers what the W-2 is to employees. It covers income amounts, while also indicating you haven’t deducted any federal, state or other taxes from the income. (Unlike employees with W-2s, contractors get their full pay without any automatic deductions. In turn, they’re responsible for keeping track of their taxes and paying them to the government directly.)
Payments covered by the 1099-MISC include:
- Wages for independent contractors or freelance service providers
- Services from a landscaper, cleaning company, or web and computer programming service
- Service that provides materials and/or parts for your business
- Health and medical insurance payments
- Attorney fees
- Service providers paid in cash
- Royalties or broker fees exceeding $10
- Rent for office space or office equipment
- Prizes and awards
A 1099-B is used to report transactions with your company that have been brokered or bartered. These transactions constitute payments that were provided in the form of something other than money. Transactions of this type most commonly occur with financial institutions and the like.
A 1099-B is needed for any brokered or bartered exchange of services for any of the following:
- Various contract types
- Mutual funds
Cancellation of debts is viewed as income by the debtor being relieved of the debt and, as such, needs to be reported. Individuals and other businesses that you’re relieving of an owed debt should receive a form 1099-C from your business.
This debt can be owed by any of the following:
- An association
- A company or corporation
- An estate
- An individual
- A partnership
- A trust
Any amount of the debt can be cancelled, not just the debt in its entirety. The cancelled debt can consist of principal debt, associated interest, fees or other costs incurred by the debt. Banks and financial institutions are required to file this form regardless of the purpose of the debt cancellation.
Banks and other financial institutions are required to file the 1099-DIV to report dividends and distributions of at least $10. However, other situations may require the filing of a 1099-DIV: liquidation payouts of at least $600, dividends in which federal income tax has been withheld according to backup withholding rules, or foreign tax that has been placed on dividends and distributions.
Savings and loans banks and other qualifying financial institutions must file a 1099-INT to report income from interest paid on checking or savings account, savings bonds or treasury bills.
However, this is only necessary if the accumulation of interest equals or exceeds $10. Exceptions do exist for this form, but certain criteria must be met. A 1099-INT is not required if the payments were made to recipients who are considered exempt or if the income from the interest is excludable.
The following cases would result in an exemption:
- Payments have been made to an exempt corporation, organizations, brokers, IRAs, health savings accounts and other similar entities
- Interest is issued with an obligation to foreign individual or organization that are not under United States tax codes
1099-R forms refer to the distribution from an organization to a retirement account of $10 or more. It should be noted that payments to these accounts from workers’ compensation payments or payments derived from the Department of Veteran's Affairs are exempt from this filing.
However, if the distributions are from multiple sources and there is a question about the exempt status of certain sources, it is best to err on the side of caution and report all sources on the 1099-R.
Distributions must be reported if they originated from the following:
- Disability payments
- Insurance payments
- Profit sharing
The proceeds garnered from a real estate transaction requires a 1099-S. Real estate brokers and similar professionals are required to report the proceeds from a sale or transaction of any property whether it’s a physical structure, an empty lot, residential or commercial, air space or stock. This also refers to any interest payments from such ownership or transactions.
A 1098 refers to mortgage interest reporting, as well as the payment of insurance premiums exceeding $600 and mortgage overpayment reimbursements. Businesses and individuals with multiple mortgages should file a separate 1098 for each mortgage in question.
The 1098 form differs in format from the 1099, so you need to pay special attention to the wording. For example, the Recipient is considered to be the Lender, and the Payer is considered to be the borrower. Also, the Recipient/Lender section appears first on the form, and the Payer/Borrower section is listed second.
Academic institutions, colleges and universities must file tuition statements in the form of the 1098-T. Each student enrolled in an educational institution must have a 1098-T to report tuition and other expenses paid by the individual. The form requires a unique taxpayer identification number and identifying information for the student, including the academic status of the individual.
A 1098-T is not required to be filed in the following circumstances:
- Tuition and expenses are paid in their entirety by public or private scholarships
- Tuition and expenses are covered by an employer or through a government funding program
- The student is categorized as a non-resident alien
- The student is enrolled in classes that are offered as audits or classes otherwise taken without the express purpose to earn academic credit
The 1099-MISC is a multi-part form. Here are the parts of the form and where to send each part:
Copy A — File with IRS by the paper or electronic-filing deadline.
Copy 1/State Copy — Filing with the appropriate state taxing authority,
Copy B — Distribute this copy to individuals, who then file it with their federal income tax return. Generally, it must be delivered by January 31. You will meet the IRS’ distribution requirement if the form is properly addressed and mailed on or before this due date.
Copy 2 — Distribute this copy to individuals, if applicable. Individuals will then file this copy with their state taxing authority. Again, it generally must be delivered to employees by January 31.
Copy C — Retain this copy for your records.
You may request an extension of time to file your 1099-MISC forms with the IRS; however, you must request the extension before the due date. Even if you request an extension, you must still furnish W-2s to employees by January 31. (There are limited exceptions when the SSA may grant an extension.)
If you don’t file the correct W-2s by the due date, and can’t show reasonable cause, you may be subject to a penalty.
Remember: If you file 250 or more 1099s you must file them electronically under IRS requirements. The 250-or-more requirement applies separately to each type of form. If you file electronically, you don’t have to file the same returns on paper.
Common Errors with 1099-MISC Forms
Avoid making the following errors, which can cause processing delays.
- Enter 0 (zero) or “none” in boxes;
if a box doesn’t apply, leave it blank
- Omit the decimal point and cents from entries
- Use ink that is too light to make entries — only use black ink
- Make entries that are too small or too large — use 12-pt. Courier font, if possible
- Add dollar signs to the money-amount boxes
1099-MISC Do’s and Don’ts
DO also file Form 1096 with Copy A of your paper-filed 1099-MISC forms with the IRS.
DO NOT staple or tape 1099-MISC forms to each other, as it can interfere with the IRS’ ability to scan the documents.
DO keep Copy C of your 1099-MISC forms (and Form 1096, if applicable) for four years.
DO NOT submit any copy other than Copy A to the IRS.
DO report each payment in the proper box; the IRS uses this information to determine whether the recipient properly reports the payment.
DO NOT use previous years’ forms unless you’re reporting previous years’ information.
DO use official IRS forms or substitute forms that meet IRS specifications. If you submit substitute forms that don’t meet the current specifications and aren’t scannable, you may be subject to a penalty for each return for improper format.
DO NOT use a 1099-MISC form to report employee wages; the W-2 is used for this purpose.