Accounting and Tax Tips Blog

Our clients constantly ask about the 1099 tax form and how it applies to sharing-economy workers, independent contractors, and freelancers.  To clear the air, we wanted to put a fully encompassing blog post together to cover this. If you’re asking yourself, “what is a 1099 form anyway?”; you’re in the right place. You’ll find everything you need to know here. 

what is a 1099

What is a 1099 Form?

1099 Forms report certain types of income received during the year. You must report this income on your tax returns.

These forms report income from sources other than wages, salaries, and tips. Businesses must issue a 1099 form for every non-incorporated contractor paid more than $600 in the calendar year. They must also issue 1099s for attorneys, regardless of amount. If employees are reimbursed for their expenses and company policy doesn’t require receipts, a 1099 must be issued if the year’s total reimbursements exceed $600.

Why Are 1099s Important?

These tax forms are important because the IRS gets a copy too.  Each form contains the taxpayer’s employee identification and Social Security number. You can’t ignore the form once it’s sent out to you. You’re responsible for your 1099s, so you must contact the IRS immediately if you haven’t received a form by mistake. Failure to file accurately will result in penalties from the first day your payment is late.

Reporting Requirements:

A 1099-MISC Form reports income that exceeds $600 generated from independent contracting services, government payments, dividends & interest, etc.  Generally, the entity that pays you must fill out the appropriate 1099 form, as there are different forms for each type of earned income. The form must be sent out by January 31st. For example, Form 1099-MISC instructions are used to report payments to independent contractors when payments exceed $600 during the year.

Businesses issue 1099-MISC forms to their subcontractors and collect 1099-MISC forms from their clients. Companies must issue 1099-MISC forms to individuals, partnerships, and LLCs.

Form 1099-K

A Form 1099-K includes the gross amount of all reportable payment transactions.  You will receive a Form 1099-K from each payment settlement entity from which you received payments in settlement of reportable payment transactions.  A reportable payment transaction is defined as a payment card transaction or a third party network transaction.

  • Payment card transaction means any transaction in which a payment card, or any account number or other identifying data associated with a payment card, is accepted as payment.  
  • Third-party network transaction means any transaction that is settled through a third party payment network, but only after the total amount of such transactions exceeds $20,000 and the aggregate number of such transactions exceeds 200

The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.

Missing 1099s

What if I do not receive a 1099 form? Do I still need to report it on my tax return? What happens if I don’t report it?

Yes, if you do not receive a 1099 and you were paid some form of self-employment income, then you must file.  As previously mentioned, if you do not report the income, it is still subject to the tax penalty.  Contact the IRS as soon as possible if you have not received expected forms.  Even if you did not receive a 1099 Form, you must report all income. If you don’t, the IRS can slam you for tax evasion. 

estimated tax payments

Estimated Tax Deadlines

For paper-filed returns, file Copy A of all paper Forms 1099 with  Form 1096, Annual Summary and Transmittal of U.S. Information Returns by February 28th. For electronic returns, file the paperwork by March 31. For more on estimated taxes, check out our estimated tax guide for independent contractors here.

What Is a W-9

When you begin contracting, you may be required to file a W-9 tax form.  The W-9 tax form is used by the various companies (e.g. Uber, Airbnb, etc.) to issue you your 1099.  You can use your personal information and you do not need a formal legal entity (e.g. LLC/S-Corp) to file a W-9 tax form.  

This is also important for a business to have this documentation as it will be substantive proof that the contractor was paid and the business will be able to deduct the independent contractor’s expenses as a reasonable business expense.

More Tax Questions

If you started this post asking, “what is a 1099,” we hope we answered your question. For more answers to your toughest tax questions, check with the pros at Shared Economy Tax. Our team of certified tax experts can help with all of your tax issues. Get started today with a free one-on-one strategy session with a Shared Economy Tax pro, or sign up for our free newsletter using the form below for more free tax tips.