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1099: WHAT IS IT AND WHO FILES IT?

The 1099 is used to report to the Internal Revenue Service (IRS) any income paid to an independent contractor or self-employed individual who has provided a service to the company or has received income/payments for non-work distributions. The IRS regards it as an information form.

The 1099 is used for different reasons but it’s main application is to report money paid to individuals who are not employed on a full-time basis, offering services on a contractual or freelance basis. They are generally self-employed entrepreneurs generating income from different sources.

WHEN IS THE 1099 FORM USED?

The 1099 is used to record information where a company has paid one or more of the following:

  • US$ 600 or more for a service, rent, prize or award
  • US$ 10 or more for royalties or broker payments in lieu of dividends for interest that is tax exempt
  • Gross proceeds to an attorney

1099 forms are also used to record information where individuals have received payments for non-work related matters. This ranges from income received for pensions, annuities, retirement or profit-sharing plans to cancellation of debt, health coverage and government payments.

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TYPES OF 1099 FORMS

There are many types of 1099 forms that record information on income and payment transactions. The broad list includes:

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 Government payments
1099-H Health coverage tax credit (HCTC) advance payments
1099-INT Interest income
1099-K Merchant card and third-party network payments
1099-LTC Long-term care and accelerated death benefits
1099-MISC Miscellaneous income
1099-OID Original issue discount
1099-PATR Taxable distributions received from cooperatives
1099-Q Payments for qualified education programs (under Sections 529 and 530)
1099-R Distributions from pensions, annuities, retirement/profit-sharing plans, IRAs, insurance
1099-SA Distributions from HAS, Archer MSA or Medicare Advantage MSA

The most common 1099 forms include:

1099-MISC
Record of payments to independent contractors or freelance agents of at least $ 600 for services rendered in a year.
1099-INT
Records any interest payment of more than $ 10 in a year
1099-DIV
Records any income received over $ 10 in distributions if you own stock or other securities; includes dividends, capital gain distribution or non-taxable distributions paid on stock and liquidation distributions.
1099-K
Issued by credit card payment processors to record third-party payment processors such as PayPal and Google Check; where a business had at least 200 transactions and at least $20 000 in sales in a year.
1099-B
Used by brokers and mutual fund companies to record the amount and date of stock sold, and provides information on a cost basis.
1099-G
Reports unemployment compensation, state and local income tax refunds, agricultural payments and taxable grants.
1099-R
Records income for distributions received from a retirement plan; IRS, Roth IRA, 401(K)

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DIFFERENCE BETWEEN THE 1099 AND W-2

The 1099 is used to record income/payments received by independent contractors and freelance agents aswell as non-work distributions; the W-2 is used for people employed in a permanent capacity in a company, earning a weekly/monthly wage.

DIFFERENCE BETWEEN INDEPENDENT CONTRACTORS AND EMPLOYEES

An independent contractor is self-employed; an employee is employed by a company on a full- or part-time basis under an employment contract.

The primary difference is a company is obliged to withhold taxes from an employees wages but is not required to do so from payments made to an independent contractor. The latter is responsible for completing and filing their own federal tax returns.

Independent contract

  • receives a contractual rate or ad-hoc payments for services rendered
  • payment ceases when contract is terminated
  • payment dates are not set
  • is not covered by employment and labor laws
  • receives the W-9 from a company which records payments of more than $ 600 in a year
  • uses the 1099 to report payments of $ 600 or more in a year

Employee

  • is covered by federal and state employment and labour laws
  • earns an hourly rate or monthly wage
  • payment dates remain the same unless formally changed
  • all wages and taxes withheld for a year are reported on the W-2

WHO IS RESPONSIBLE FOR FILING THE 1099

Independent contractors and freelance agents are responsible for completing the relevant 1099 form and filing it with the IRS. What 1099 form is required depends on the filing criteria.

The company who has contracted the services of an independent contractor or freelance agent completes the W-9 to record any payments that add up to more than $ 600. This information is used by the contractor or freelance agent to fill and file his/her 1099.

PENALTIES FOR NOT FILING A 1099

The IRS will impose a penalty if you fail to file a 1099 on time and/or fail to supply the recipient on time. The IRS also imposes a penalty if the required information is not recorded, such as tax identification number. Refer to the IRS website for deadline for filing a particular 1099 form and the latest penalty fees.

WHERE DO YOU GET 1099 FORMS?

The 1099 forms are pre-printed in triplicate by the IRS and dated. You must use the correct form for the current year; marked on the forms on the bottom in black lettering.

You have the following options:

  • order the forms from the IRS and collect from the IRS service centre
  • purchase the forms from the post office or a stationary outlet
  • purchase the forms online from a reputable source

You can file any 1099 form online with the IRS using the FIRE System (Filing Electronic Returns Electronically) online.

DOWNLOAD 1099 FORMS HERE

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