Small Business

Different Varieties of 1099 Forms Worth Familiarizing Yourself With

Determining the Right Time to Send out a 1099 Form and Popular Varieties

Understanding Different Types of 1099 Forms

Trying to navigate the world of business taxes can be overwhelming, particularly when it comes to understanding the various types of 1099 forms. In addition to receiving a traditional paycheck or a W-2 form, there are many ways to earn income throughout the year. According to Pew Research, 16% of Americans have earned income through participation in the gig economy. This income is subject to taxation, and it is essential for the IRS to be informed about it. While you may be familiar with Form 1099-MISC, there are actually close to 24 different types of 1099 forms, each designed to document specific types of income. In this article, we will provide an overview of who should be issuing and receiving different 1099 forms and delve into some of the more common types that you may encounter in your business endeavors.

What Exactly are 1099 Forms?

Each type of 1099 form serves as an informational return intended to alert the IRS about any income earned outside of W-2 wages. Since payments reported on a 1099 form do not include employee salaries, they typically do not have tax deductions. In some cases, there may be issues related to taxpayer identification where backup withholding becomes necessary, which should be clearly indicated on the form. The forms include taxpayer identification numbers and income amounts, and they are sent directly by the taxpayer to both the IRS and the payee.

Typically, the payer is required to provide the recipient with a copy of the 1099 form by Jan. 31 of the following year in cases where nonemployee compensation payments are being reported. If the payer is filing electronically and not reporting such compensation, the deadline is March 31; if filing by paper and not reporting such compensation, the deadline is the last day of February. The payee should then report that income on their tax return, where it will be cross-referenced with IRS records.

It's a good idea to always keep an updated W-9 on file to ensure that all 1099s have the correct address and tax ID. Similarly, when hiring a contractor, it's important to request a W-9 to verify the need for a 1099 and to have the correct information on file.

Who Needs to File a 1099 Form?

Businesses of all sizes are required to issue 1099 forms when necessary. Each form must be submitted on time and must include both the amount paid and the correct taxpayer ID number to avoid potential penalties for the payer. While there are exceptions, as a general rule, payments made to corporations, S corporations, C corporations, tax-exempt organizations, or for rents do not need to be reported on 1099 forms.

Sole proprietors must also file 1099s for payments made in the course of regular business operations, but not for personal payments. For example, a sole proprietor would issue a 1099-NEC when hiring a bookkeeper for their business, but not for payments made to a dog walker. Additionally, sole proprietors should report any 1099 income they earn on Schedule C of Form 1040.