Last week’s final installment on our capital gains tax series explained how you are taxed on income from capital assets. But how exactly does the IRS know you made that extra money? Through a Form 1099.
This week we’ll look at what to do if you get a Form 1099 and what to do if you need help. We’ll also look at some of the variations of Form 1099.
Handling A Form 1099
Getting a 1099 may generate a lot of questions. The first is usually, “Why did I get this?” There are many reasons you could have received a Form 1099. But one of the most common explanations is you generated more than $600 in income from someone beyond your employer. But this is not always the case. We’ll look at some of the other reasons in a bit.
What to do with a 1099
No matter the reason you got a 1099, you must act on it. The IRS records it and expects you to report each one you get. But what if they mistakenly issued a 1099? If you think it was received wrongly, reach out to the issuer. If you can’t get a resolution with the employer, reach out to a CPA for advice. You can also call the IRS at 800-829-1040.
Whatever you do, don’t ignore it.
What to do about undelivered 1099s
Suppose a company was supposed to issue you a Form 1099, and they don’t. This isn’t a common problem because the IRS penalizes issuers that fall down on the job. But it’s not unheard of either. For example, if a client paid you through a private account on an app like Venmo or PayPal, it may not show up. You can avoid that problem by tagging it as business-related or using a business account if the platform offers one. Also, if you received less than $600 from an employer, they don’t have to generate a Form 1099. But you must report all your income whether you received a 1099 or not.
Type of 1099s
There are a variety of 1099s, but some of the most common are:
1099-B: You’ll get this when you generate capital gains (or losses) from selling stocks, bonds, securities, and property handled by a broker. It will also show up if you have a barter exchange transaction.
1099-C: Had a debt of $600 or more canceled? The creditor will send this one to you.
1099-DIV: This is issued when you make $10 or more in dividends from a taxable account. You still have to report it even if you reinvested the shares.
1099-G: Payments from any government (federal, state, or local) of $10 or more for credits, refunds, or offsets are reported to the IRS. So, for example, if you receive unemployment compensation of $10 or more, you’ll receive one.
1099-H: This is issued when you or a family member receives advanced payments for health insurance.
1099-INT: Don’t confuse this one with 1099-DIV. This one is issued for $10 or more of interest earned in a bank account.
1099-K: This one is for payments received through a third-party network or credit and debit transactions. If you are part of a ridesharing network or an online store that accepts credit cards, you’ll probably see this one.
1099-MISC: 1099-MISC is one of the most common 1099 forms. It is a catch-all for miscellaneous items such as rental income, prizes, and medical payments.
1099-NEC: Form 1099-NEC is very common. Typical recipients are contractors and freelancers earning more than $600 outside W-2 wages.
1099-R: If you received a distribution of retirement benefits from a retirement plan. You’ll also get one if you roll over a plan to a different custodian. The good news is that rollovers are not considered taxable events.
The bottom line
The IRS requires 1099s to be issued to track income and, in some cases, income movement. So, you’ll have a smooth tax season if you act on every 1099 received and report all your income.