Form 1099 is used to report certain types of non-employment income to the IRS, such as dividends from a stock or payment you received as an independent contractor. In January and February, they are inevitable.
Businesses must issue the forms to any recipient (other than a corporation) who receives at least $600 during the year. And this is just the basic threshold rule.
There are very many exceptions. That’s why you probably get a Form 1099 for every bank account you have, even if you only earn $10 in interest.
There are many varieties of 1099
There is a dizzying range of 1099. There are 20 types as of 2021. Here is a list of just a few of them:
- Form 1099-INT for interest
- 1099-DIV for dividends
- 1099-G for local and state tax refunds and unemployment benefits
- 1099-R for pensions and payments from your IRAs
- 1099-B for Broker Transactions and Barter Exchanges
- 1099-S for real estate transactions
Although there are many categories, Form 1099-MISC seems to raise the most questions and covers the most territory for non-employment income.
What if you don’t get all your 1099s?
The most important thing to remember is that you are responsible for paying any taxes you owe even if you don’t get the form, so following up with the company might be a good idea.
If the business submits a Form 1099 to the IRS, but for some reason (see below) you do not receive it, the IRS will send you a letter (effectively, an invoice) stating that you owe income taxes.
This letter could even arrive a few years later. If the company did not file Form 1099 for you on income, you should report it as miscellaneous income. It might be worth asking a tax professional for other alternatives.
Taxpayers do not include 1099s on their tax returns when submitting them to the IRS, but it is a good idea to keep the forms with other tax records in case of an audit.
Stay on top of a new address
Whether or not the payer has your correct address, the information will be reported to the IRS (and your state tax authority) based on your Social Security Number (SSN). This means that it is in your interest to ensure that payers have your correct address.
Update your address directly with payers and place a reshipment order with the US Postal Service. You will want to see all the forms the IRS sees.
The IRS also gets your Form 1099
Any Form 1099 sent to you is also sent to the IRS, often a little later. The deadline is January 31 for sending 1099s to most taxpayers, but some are due February 15. Others are due to the IRS at the end of February. Some payers send them simultaneously to taxpayers and the IRS.
Most payers send copies to taxpayers by January 31. They can wait a few weeks to collect all the copies from the IRS, summarize them, and forward them to the IRS. This is usually done electronically.
Report Errors Immediately
The delay means you may have a chance to correct obvious mistakes, so don’t just put the 1099 finishes in a pile. Be sure to open them immediately.
What do you do when you get a 1099-MISC on January 31 that reports $8,000 in income when you only got paid $800 from the company? Inform the payment immediately. They may still have time to correct it before sending it to the IRS. It’s better for you.
If the payer has already sent the incorrect form to the IRS, ask the payer to send a corrected form. There is a special box on the form to show that it is correcting an earlier 1099 to ensure the IRS is not simply adding up the amounts.
Declare each Form 1099
The key to Form 1099 is computerized IRS matching. Each Form 1099 includes the Payor’s Employer Identification Number( EIN) and the Payee’s Social Security (or Taxpayer Identification) Number. The IRS matches almost all 1099 forms with the beneficiary’s tax return.
If you don’t agree with the information on the form but can’t convince the payer that you’re right, explain it on your tax return. For example, suppose you received a $100,000 payment from your auto insurance company to cover your medical expenses and whiplash pain that you suffered in an accident. Payment for personal bodily injury is excluded from income and should not normally be the subject of a Form 1099.
If you were unable to convince your insurance company to cancel Form 1099, try explaining it on your tax return. One is to include a zero with a “see note” on line 7a, the “other income” line of a Form 1040 that is reported on line 8 of Schedule 1.
Then the footnote shows something like this:
Payment incorrectly reported by XYZ Insurance on Form 1099: $100,000
Amount excluded under section 104 for bodily injury: $100,000
Net at line 7a: $0
There is no perfect solution but one thing is clear. If you receive a Form 1099, you can’t just ignore it because the IRS won’t.
Don’t overlook the 1099 form
No one likes a tax audit, and there are many stories about what will cause one. But if you forget to report the $500 of interest you earned in a bank account, the IRS will send you a computer-generated letter charging you tax on that interest. If it’s okay, pay it.
Don’t Forget State Taxes
Most states have an income tax, and they receive the same information as the IRS. So if you missed a Form 1099 on your federal return, know that your state will likely catch up too.
Don’t ask, just say
Keeping payers informed of your current address is a good idea, as is reporting errors to payers. But that’s where you should stop. In other words, if you don’t receive the Form 1099 you expect, don’t request it. If you’re expecting a Form 1099, you undoubtedly know the income, so just report that amount honestly on your tax return. IRS computers have no problem with this.
If you call or write to pay and raise the issue, you may be buying into trouble. The payer may issue Form 1099 incorrectly. Or you may end up with two of them, one issued in the normal course (even if it never reached you) and the other issued because you called. The IRS computer may end up thinking you had double