A Guide to IRS Form 1099 — Non-Employment Income

Form 1099 is used to report non-employment income, like interest and contract work compensation. Learn more about the different types of income and who uses this form.

Key takeaways:

• There are many types of income you must report to the IRS outside of employment income, including interest, dividends, real estate sales, retirement payouts, and contract payments.
• Form 1099 is used to report this income to the IRS.
• Common 1099s include 1099-INT, 1099-MISC, 1099-NEC, and 1099-R.
• 1099 income must be included on tax returns.

Taxpayers may bring in income from several sources throughout the year aside from a regular employer—if they have one. An individual will likely receive IRS Form 1099 from whoever paid them, whether that’s a financial institution or a freelance client.

If you’re a business owner wondering if you need to file this form or a contractor who may receive one from a company, it’s important to understand the different types of income these forms are used for. There are several types of 1099s depending on what kind of compensation is being paid.

Here’s a look at what form 1099 is, different types of income, and an overview of the most common 1099s you may receive or have to file.

What is Form 1099 used for?

IRS Form 1099 reports income that is considered non-employment income. Taxpayers who receive compensation outside of their W-2 tax form, which employers distribute to summarize earnings and withholdings, usually receive a 1099 of some kind that lists what they earned from sources like contract work and investments.

In fact, there are many different types of income outside of employment income. Common examples are:

• Dividends
• Freelance and independent contract compensation
• Interest
• Unemployment benefits
• Retirement plan payouts
• Sales of stocks and other securities
• Real estate sales
• Prizes or awards

Whoever provided the compensation, whether a bank or a business, typically files the form with the IRS, and it’s up to the taxpayer receiving any income that applies to report it on their annual tax return.

Most common types of 1099s

There are actually numerous 1099s, each of which is based on the income type. Here are the most common forms you will likely come across:

• 1099-B, Proceeds from Broker and Barter Exchange Transactions: This 1099 is filed by a broker if you sell stock.
• 1099-DIV, Dividends and Distributions: Financial institutions file 1099-DIV if you receive dividends or other investment distributions over $10.
• 1099-G, Certain Government Payments: Taxpayers receiving unemployment, grants, or tax refunds may get this form.
• 1099-INT, Interest Income: If you receive over $10 in interest in your bank accounts, your institution will have to file this form.
• 1099-K, Merchant Card and Third Party Network Payments: This 1099 is used by business owners if payments were received from payment card transactions and/or payments in settlement of third-party payment network transactions. It’s only issued if there were over $20,000 in payments and there were more than 200 of them.
• 1099-MISC, Miscellaneous Income: Income of at least $600 made in rent, from certain contracts, to an attorney, and other sources must be reported on the 1099-MISC.
• 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.: Any distributions from a retirement plan are reported on this 1099.
• 1099-S, Proceeds from Real Estate Transactions: Income received from a sale or exchange of real estate is reported here.
• 1099-NEC, Nonemployee Compensation: Since 2020, businesses must use this form to report non-employee compensation instead of the 1099-MISC. The 1099-NEC must be filed if a company pays a non-employee $600 or more in the applicable tax year. This is now the form that an independent contractor will receive.

There are many different uses for the 1099. The important thing to remember is that if you paid someone at least $600 in a tax year who isn’t your employee, you’ll likely have to file a 1099. If you are a freelancer or contractor and received payments of $600 or more, you should receive a 1099 from whoever paid you to include with your tax return. Any income you receive from your investments also must be reported via a 1099.  

Make sure to keep good tax records throughout the year to verify that all 1099 information is up to date and accurate. Otherwise, there could be issues and discrepancies with the IRS. Every 1099 you receive must be reported on your tax return. 

Also, remember that any income you receive from the same party that is at least $600 or interest payments over $10 needs to be reported to the IRS, even if the payer doesn’t file or send a Form 1099 by the deadline. Payers usually need to mail 1099s by January 31.

Where to get your tax form questions answered

Tax time can be stressful for any business owner. When you need assistance knowing which tax forms you need to file or how to report all income, work with a tax expert who knows the guidelines you must follow.

The team at Provident CPA and Business Advisors is here to help. We provide tax-minimization services, so you’re never paying more than you are legally required. We also help business owners with growth and profit improvement services through proactive management systems. 

Contact Provident CPA and Business Advisors today to learn more.