Who Has to Send a 1099?

in Tax Information


The 1099 series of forms are known as “information returns” and required by the Internal Revenue Service (IRS) to be issued by almost all non-employer payers – people, organizations, or institutions that pay money to American taxpayers – in the United States. These information returns show the amount of money paid to the taxpayer as well as other relevant information related to the payments, such as withheld amounts and other details. The information on the 1099 is then entered on the taxpayer’s personal or business income tax return to document the amount of money earned through these alternative income methods. Basic wages, salaries, and tips are not reported on 1099 forms, but on employer issued W-2 forms. Every 1099 is issued in triplicate, with one copy being held by the payer, one copy being filed directly with the IRS and one copy being sent to the person that received the payment.

There are almost twenty different types of 1099 forms that are issued for different types of income, as well as a number of other forms that are also used to report certain payments though they are not 1099s. Some forms of 1099 are much more common than others. For example, a 1099R reports income earned in various retirement plans and arrangements like IRS, 401(k)s, and various qualified plans and are therefore received annually by anyone with some sort of retirement plan. On the opposite end of the spectrum, the 1099OID is fairly uncommon and relates to money earned by purchasing bonds at a rate lower than their eventual redemption value, a rather complex taxable amount that only really applies to people with complex investment structures.

In general, most 1009s are issued by financial institutions, investment firms, and brokerages, though there may be occasions when individuals are required to issue 1099 forms. For example, if a person uses a contractor and pays him or her and the amount exceeds $600, that person has to issue a 1099MISC (miscellaneous), to that contractor for the amount paid. Frequently landscaping and other household maintenance and improvement workers operate as independent contractors, in which case the customer has to issue a 1099-MISC for the amount paid to that contractor. More often than not, if a contractor requires a 1099MISC they will notify the client of this fact in advance and show them how to proceed. However, if this is not the case, the client can find all of the relevant information on the IRS website: www.irs.gov.

Since a copy of every 1099 is sent directly to the IRS, these documents play a key role in determining whether or not the taxpayer is reporting everything earned properly or not. When an audit is initiated, the IRS will compare all of the taxpayers 1099s to all of the amounts claimed on their return. If there is a disparity – either more or less money reported on 1099s than claimed on the individual return – then the taxpayer is usually in trouble. For this reason it is important to ensure that all 1099s owed are duly issued before the end of the calendar year. If a person is expecting a 1099 and does not receive one, it is very much in their best interest to contact the payer to ensure that the 1099 was issued and to request a copy of it.

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