Each spring when tax season comes along, you must report your income to the Internal Revenue Service. If you receive wages or salary as an employee, that income is usually reported on Form W-2. If you receive income as a freelancer, independent contractor, or through interest from deposit accounts, in royalties or from the sale of real estate, your income is reported on Form 1099. Form 1099s come in several categories, depending on income type.
Miscellaneous income is reported on Form 1099-MISC. A Form 1099-MISC must be issued for royalty income exceeding $10 and for $600 in proceeds paid to an attorney or for rents, services, prizes and awards, medical and health-care payments, crop insurance proceeds, cash payments for fish or other aquatic life purchased for resale. The following types of income are not reported on Form 1099-MISC: Payments for merchandise, telegrams, telephone, freight, storage; payments of rent to real estate agents; wages paid to employees; wages to employees on active duty in the Armed Forces; or business-travel allowances paid to employees.
Small businesses receive payments for products and services through credit cards, bank transfers or payment processors such as PayPal. Form 1099-K is designed to report gross receipts from credit card payments to your business, payments by bank transfer and other third-party network payment processors such as PayPal or eBay. If your annual income from third-party network payments is less than $20,000 and there are under 200 transactions, they don't have to be reported on the 1099; all other payments, including credit card receipts and bank transfers, must be reported in their full amounts.
Form 1099-G is for reporting government payments such as unemployment compensation, agricultural payments, state and local income tax refunds, as well as taxable grants. Regarding income tax refunds and unemployment compensation, solely amounts in excess of $10 are reported.
Form 1099-DIV is used to report certain distributions on stock and dividends on stocks, money markets or other investments. All distributions exceeding $10, such as dividends, capital gain distributions, or nontaxable distributions, that were paid on stock should be reported on Form 1099-DIV. Liquidation distributions exceeding $600 must also be reported on this form.
Form1099-C is for reporting cancellation of in excess of $600 of debt owed to a financial institution, the Federal Government, a credit union or any organization that lends money. Financial institutions and corporations use Form 1099-INT to report interest income. Form 1099-R is for reporting distributions from retirement or profit-sharing plans, any IRA (including IRA re-characterizations), and insurance contracts.
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