At the beginning of each New Year, you should begin receiving a host of informational tax statements from various institutions. These institutions can include banks and investment brokerages as well as any other place you did business with during the previous year.
Form 1099 is a document many taxpayers receive. This form reports income from self-employment earnings, interest and dividends, government payments and more. And because the form reports different types of income, there are various versions specific to each source. Here are four things you should know about the most common versions of Form 1099.
1. Not all 1099 forms are the same.
Form 1099-MISC, Miscellaneous Income. Many taxpayers are familiar with this version. In this instance, miscellaneous income includes any freelance work or contract labor you performed for other businesses.
Private individuals don’t have to send the form. For example, if you run a carpet cleaning business, your homeowner customers will not send you a Form 1099-MISC indicating how much they paid you. You must still pay tax on the income, however.
Additionally, you shouldn’t receive this form if you are incorporated as a C corporation or S corporation. If you are a limited liability company (LLC), you should still receive Form 1099-MISC.
Form 1099-G, Certain Government Payments. Unemployment compensation benefits are taxable income and are reported on Form 1099-G.
You may also receive Form 1099-G for other government payments, such as state tax refunds.
Form 1099-K, Payment Card and Third Party Network Transactions. If you accept bank cards as payment through your business, you get this version from the bank. This form shows your total bank card revenue.
Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. If you received retirement income or retirement plan distributions, you should get Form 1099-R reporting that income. The financial institution may calculate the taxable portion of your distributions on this form for you.
Form 1099-DIV, Dividends and Distributions. This document reports how much you received in dividends and other distributions in the most recent tax year. The form also shows qualified dividends or capital gains distributions. Each are taxed at lower rates for long-term capital gains.
Form 1099-INT, Interest Income. You receive this statement from banks, brokerages and other institutions that paid you interest over $10 for the tax year.
2. The IRS gets a copy too.
For every Form 1099 you get in the mail, the IRS also gets a copy. The IRS computers match income and other information on these forms to information on your return.
If there’s a discrepancy, the IRS will amend your return and send you a larger tax bill. For example, if you show less total business income on your return than they expect they will send you a notice citing inaccurate reporting.
3. It’s not always accurate.
Occasionally the 1099 form you receive may contain a mistake. Aside from clerical errors, it’s easy for a company to send you a Form 1099 for income that is not really yours. This sometimes happens when a person handles someone else’s affairs.
The IRS can also make mistakes, such as counting the same Form 1099 twice.
When preparing your tax return, a good rule of thumb is to always compare the amounts on your Form 1099 with your own records to make sure everything is correct. Request a corrected copy if the information is wrong.
If the IRS sends you a notice based on incorrect information, reply in writing immediately and explain the problem. Keep copies of all correspondence with the IRS.
4. You must report income even if you don’t receive Form 1099.
In many cases, you may not get a Form 1099. The income amount you received may be under the limit for the form requirements, or it may meet some other exception. Your payer could have not sent the form as well.
No matter the reason, you must report and pay any tax on your income. If you are ever audited, you have to show all income was reported.