The Internal Revenue Service series of 1099 information returns report income earned by an individual outside of a payroll job. For most young adults and couples, the 1099-MISC is the most common form received as it reports non-employee compensation. Other variations of the form, such as the 1099-DIV, 1099-R and 1099-INT, may appear as an investment portfolio and retirement accounts grow.
A business must send out the 1099-MISC form to any person or business it pays funds to in excess of $600 for goods or services. If you act as a sole-proprietor and do contract work for a variety of businesses, you may receive 1099-MISC forms from multiple sources and may need to send out several to companies you purchase items and services from for business purposes. Independent contractors should be sent the 1099-MISC by the end of the January following the tax filing year, and the IRS needs its copy by Feb. 28 of the same year if you file with paper. Electronically filed forms must be sent in by April 1 to avoid a penalty.
Employee or Independent Contractor?
The 1099-MISC form must only be sent to independent contractors and not to employees of a business. The IRS maintains a set of behavioral, financial and relationship criteria to help you determine if you are an employee. If you must complete your work in a certain fashion with specific directions as to how, if the business portions of your work are controlled by the business, or if written employment and benefit contracts exist or the work is a key aspect of the business, then you may be an employee entitled to wages which would be reported on a W-2 instead of a 1099. You must also assess your relationships with any contractors your business pays to ensure they are not employees.
Other 1099 Forms
As you develop an investment portfolio, other 1099 forms may become part of your annual tax filing process. The 1099-INT reports interest income while the 1099-DIV reports income from dividends and distributions. Form 1099-R reports distributions from retirement pensions, annuities, individual retirement accounts, retirement plans and insurance contracts. Unless you qualify for and take early distributions from your retirement accounts, the 1099-R likely will not be part of your life until retirement. Other forms you may occasionally encounter include the 1099-C, which is sent when a debt is canceled by a creditor, and the 1099-S, which reports proceeds from a real estate transaction.
Because income earned and reported on the 1099 is not considered wages, taxes are not withheld. You must pay Social Security tax, Medicare tax, and both federal and state income taxes on the funds. These taxes may be remitted via quarterly estimated tax payments or when you file your income tax return. If you owe more than $1,000 in taxes on this income in a tax filing year, you must remit estimated tax payments the next year or face a penalty if you again exceed $1,000 in taxes owed.
Ashley Mott has 12 years of small business management experience and a BSBA in accounting from Columbia. She is a full-time government and public safety reporter for Gannett.