The 1099 Tax Form (also known as Information Return) is issued primarily for independent contractors or freelancers to show the total amount of earnings for the year (January 1 through December 31st) for people who have received $600 or more. They are probably one of the simplest tax forms to complete because it does not show any deductions, i.e., medical insurance, social security, Medicare, life insurance, workmen's compensation, retirement contributions, etc, nor does it show any State or Federal deductions. In other words, it does not show any standard wages or tips that you find on the W-2 Form.
The 1099 Form is to be completed by any business, organization, corporation, charity, estate, or individual who performed transactions. They can be filed by mail or electronically at the beginning of the year. For businesses issuing more than 250 forms a year, the form must be filed electronically or magnetically.
The most popular 1099 Form is 1099-MISC which is used to hire Per Job workers, especially because of the economical downturn; businesses do not have to feel committed after the work is completed; simply give a 1099 Form. In fact, most of the creative artists, for example; actors, artists, free lance writers, etc., have always worked under the Per Job Compensation method. IRS requires Independent Contractors to report the income and use the 1099-MISC form to calculate taxes they owe, and it can also be included with the personal income tax forms that are filed at the beginning of the year. The Company does not have to send a copy of the 1099 Form to IRS; only to keep a copy in their files.
Independent Contractors are required to pay the taxes at the time of filing; however, depending on the amount of money one has earned; IRS may require the Independent Contractor to withhold a certain amount of money quarterly for estimated taxes. If this is so, IRS will keep the amount owed for taxes and refund the overpayment (if applicable).
OTHER TYPES OF 1099 FORMS include proceeds from:
- Barter arrangements
- Debt cancellation
- Dividends from IRA accounts, retirement funds, or annuities
- Gambling winnings
- Rent received from rental property
- Gambling or prize money
- Distribution of life insurance payments
- Payments from Government money earned from real estate.
All of the above forms of earnings are to be reported to IRS by 1099, otherwise fines and penalties could be levied years after the actual transaction. Most of these 1099 Forms are to be filed at the beginning of the following fiscal year; usually February or March or with the taxpayer's personal income tax filings; however, there is a few 1099 Forms that need to be filed a few days following the transaction; but these are usually transactions involving large sums of money or foreign financial institutions.
There are many types of 1099; however, 1099-MISC is the most popular. It is used for Independent Contractors or Freelance workers.. The 1099-INT is used for Government-paid interest in a particular year, and 1099-G is used for tax refund from the Government.