Are you a freelance worker struggling to understand the different 1099 tax forms? As the tax filing deadline draws near, it is high time you get a grasp of what 1099 tax forms are and which ones you need for filing in the 2023 tax season.
It is the time of the year when you need to keep an eye on your mailbox both offline and offline – for mails marked as “tax information”. It may contain different types of 1099 tax forms as applicable for you. With Beem, America’s first Al-powered Smart Wallet App, you can file your taxes for free and with utmost ease.
What Is A 1099 Tax Form
A 1099 form is used to demonstrate income received by an individual during the year that wasn’t earned as compensation for a regular salaried position. So, if you are self-employed or run a side business, then you pay taxes on this income. For the 2023 tax year, this limit for third-party payment companies is 200 transactions and $20,000. The IRS has postponed the lower $600 threshold’s effect until 2024.
If you’re an independent consultant or freelance worker, you might receive this tax form from an organization or individual from who you received a payment. They provide this tax form by January 31 of each year (just like an employer must).
There are numerous ways to generate additional income. As a result, there are different types of 1099 tax forms to report different sources of income. A taxpayer can register to create a free IRS account and see what 1099 tax forms they can expect to receive. Those issuing a 1099 will also issue a copy of it to the IRS.
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Types Of 1099 Tax Forms
Individuals with additional income sources may receive multiple types of 1099s. What are the different types of 1099 tax forms and why do you need them?
Here’s what to know about the different types of 1099 tax forms:
Form 1099-INT documents the income that you received in the form of interest from savings. If you have a high-yield savings account that earns a significant amount of interest, both you and your bank report that money as income, noting that you’ll owe taxes on it.
Banks usually send out 1099-INT forms in a timely manner. If you receive this form, it does not necessarily mean that you will owe taxes on that money. You become entitled to other deductions that offset the income. Since this form has your Social Security number listed, the IRS will know that you received interest. So make sure to file this income on your tax return.
Income from distributions and dividends on investments is reported on Form 1099-DIV. If you hold stocks or mutual funds in your brokerage account, and these investments pay out dividends, it will be considered income. Note that dividends accumulated in tax-sheltered retirement plans like a 401(k) or IRA are not subject to this dividend income.
Form 1099-NEC documents any compensation paid to non-employees. If you have worked independently as a gig worker, freelancer or independent contractor and received payment of over $600 for the same, you should expect to receive this form. If your client did not provide you with one, make sure to ask for it. Even if your income is less than $600, you must still declare it on Schedule C.
Form 1099-CAP documents “changes in corporate control and capital structure”. So, if you owned stock in any company that recently went through an acquisition or significant change in capital structure, you might be required to report any cash, stock and/or property gained as a consequence of it.
All payments made for your trade or business are reported on Form 1099-MISC. If you received a payout of $600 or more in a given year from a business, you will receive a 1099-MISC. Types of income reported in this category include prize money, gross proceeds payments to attorneys and rental payments for space or equipment. Usually, landlords will need to file the 1099-MISC to report any payments made to contractors, lawyers, property managers, maintenance contractors and anyone else who carried out work on the property but was an employee.
Purchase or abandonment of secured property is reported on Form 1099-A. Your lender will send you this form to record capital losses if you lost a property to foreclosure. If your lender believes that you are unable to pay your mortgage and your foreclosure price did not cover the remaining balance, they may erase your obligation. In that case, you will also receive Form 1099-C as canceled debt is regarded as income.
Form 1099-C documents the income in the form of cancellation of debt. If your debt was forgiven, your lender will send the appropriate documentation to both you and the IRS. A debt is considered taxable income in the year when it’s canceled. Examples of canceled debt include property foreclosure or a charge-off on a credit card.
Income from the sale of securities at a brokerage or barter exchange is reported on Form 1099-B. If you sold shares last year, a 1099-B will detail your gain or loss. Be diligent about filing this form, even if you sold at a loss. Some of your losses might be eligible for carryover to the next year. It would help offset any potential tax on future gains.
This form is used for reporting unemployment benefits and other specific government payments. They can include refunds of state or local taxes, taxable grants or payments from the Department of Agriculture.
Payments made in advance to help offset certain qualifying health insurance expenses are documented on Form 1099-H. Taxpayers receiving Trade Adjustment Assistance (TAA), reemployment TAA or benefits from a Pension Benefit Guaranty Corporation were given relief under the Health Coverage Tax Credit from 2002 to 2021. Legislative efforts are on to make this Tax Credit program permanent to reduce health insurance costs for low-income individuals.
Form 1099-K reports income from a third-party payment processing platform. This form is distinct from other types of 1099 tax forms. It is used to report payments made through credit or debit cards or through a third party.
Payment processing companies are required to distribute a 1099-K only if you had over 200 transactions amounting to $20,000 or more in income in a given year. The new rule is to lower that limit to $600 a year, and it is planned to be implemented in 2024.
Note that a 1099-K form reports gross income. As you most likely paid fees to the third-party payment processing platform for their service, you may include these expenses in your deductions.
The Tax Cuts and Jobs Act of 2017 added a new section to the Internal Revenue Code. It included new regulations for “reportable policy sales” of life insurance. The IRS created two new 1099 forms to document this: Form 1099-LS and Form 1099-SB. If any policy sale has occurred, it must be reported to the IRS and all parties involved will receive a 1099-LS form.
If a business or an individual purchases a life insurance contract or an interest in a contract, they will receive Form 1099-LS. For instance, the sale of the policy is required to be disclosed if a business acquires another business that had life insurance holdings as part of its assets.
Income obtained as a result of long-term care or accelerated death benefits is reported on Form 1099-LTC. An accelerated death benefit is when a life insurance policyholder receives their benefits before death because they have been deemed terminally ill by a doctor. This benefit is intended to help the policyholder cover medical costs and make them comfortable. You may also receive a 1099-LTC if your insurance policy is actively being used.
Form 1099-OID documents income received as a result of the “original issue discount”. An original issue discount is when you purchase a bond for less than its face value. The difference between the bond’s face value and its original issue discount is considered taxable income.
Form 1099-PATR reports “Taxable distributions received from cooperatives”. If you are part of a cooperative and you earned distributions of profits from it, you’ll receive this tax form.
Form 1099-Q reports “payments from qualified education programs”. You will receive this form to show your income if you received distributions from a Coverdell education savings account (CESA) or a 529 plan for educational costs.
Form 1099-QA records distributions made from an ABLE account. Those who are disabled before the age of 26 can save money and use a tax-advantaged 529A ABLE account. This money is used to pay for disability-related expenditures, thanks to the Achieving a Better Life Experience Act of 2014.
Form 1099-R is for reporting distributions from pensions, retirement plans, annuities, profit-sharing plans, IRAs and insurance contracts. If any of these sources contribute to your income, then you should receive a 1099-R form.
You report profits from a real estate transaction on Form 1099-S. If you sold real estate that increased in value, you must pay capital gains tax on the difference. However, there may be some exemptions from this taxable gain.
As per the Taxpayer Relief Act of 1997, one can be exempted from the first $250,000 of the gain ($500,000 if married and filing jointly) if the house being sold was their principal residence and resided in for at least 24 months. This exemption can be availed only every two years.
You report “distributions from a Health Savings Account (HSA), Archer MSA, or Medicare Advantage MSA” on Form 1099-SA. The owner of the health savings account will issue you a 1099-SA to document your income each time you make a withdrawal.
HSAs provide three tax benefits. Your contributions to a health savings account are tax-free both when you make them and when you withdraw them, and any interest you receive is also tax-free. Your distributions must be used for qualifying health-related expenses in order to qualify for the tax break.
Form 1099-SB is filed by the original issuer of the policy after they receive a 1099-LS to document their investment and the surrender amount. It also serves as documentation for the sale of a life insurance policy. If the policy is transferred to a foreign person, the issuer must additionally submit Form 1099-SB.
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What To Do If I Don’t Receive My 1099s?
Typically, you should receive your 1099 tax form in the mail by January 31 of each calendar year or latest by early February. If you still haven’t received your documents either by mail or electronically, don’t panic. You can simply reach out to the issuer for assistance or refer to your bank statements. Even if the person or company is not planning to issue you a 1099, you can still claim it as other income or self-employment income on your return. As a last resort, you can call the IRS and seek advice.
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How To Calculate Taxes On 1099s
You calculate taxes on your 1099 income like any other income. To calculate your tax liability, apply the IRS tax rates for the various income brackets. This is from your income tax only. If you are a self-employed individual, you also have to pay the Self-Employed Care Act (SECA) tax, which is 15.3% of your net income.
The good news is that self-employment taxes only apply to your net profits. Additionally, you can reduce your taxable income by another 50% of the total SECA tax by deducting it from your income. A self-employed individual usually marks the share paid by the employer on behalf of a full-time employee as a business deduction.
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Today, more and more people are relying on side jobs and other sources of income to supplement their income. This blog informs you about the various 1099 tax forms, how to verify that you have received all your documentation and simplify your tax filing season.
Once you have all of your paperwork in place, you can either file online by yourself or work with a tax professional to get the required guidance. If you file early in the tax season, you may see a quicker turnaround, and if you’re due a refund, you can get it even quicker.