Sometime in February, you might receive one or more 1099 tax forms in the mail. You need to hang on to them, because they can have a big impact on your tax life.
What is a 1099 tax form?
- An 1099 tax form is a record that an entity or person — not your employer — gave or paid you money. The payer usually has to generate the Form 1099 and send copies to you and the IRS. There are several kinds of 1099s.
- You might receive a 1099 tax form from your bank, for example, because it paid you interest on your savings. Or you might receive one from the financial institution that holds your IRA, because it wrote you that check from your account. Or maybe one will come from your state, because it sent you a tax refund last year.
- Freelancers often get 1099s from their clients. They reflect the money the client has paid the freelancer. (Check out some tax deductions that could offset some of that income.)
- Whatever the case, a Form 1099 will have your Social Security number or taxpayer identification number on it, which means the IRS will know you’ve received money — and it will know if you don’t report that income on your tax return.
- Simply receiving a 1099 tax form doesn’t necessarily mean you owe taxes on that money. You might have deductions that offset the income, for example, or some or all of it might be sheltered based on characteristics of the asset that generated it. In any case, remember: The IRS knows about it.
What do I do with a 1099 tax form?
You use your IRS Form 1099s to figure out how much income you received during the year and what kind of income it was. You’ll report that income in different places on your tax return, depending on what kind of income it was.
If you need help estimating how income on a Form 1099 could affect your tax bill, check out our handy tax calculator.
What does my 1099 tax form mean?
There are several types of 1099 tax forms (you can see all the details from the IRS here). Here’s a basic rundown of the Form 1099s most likely to cross your path.
Simply receiving a 1099 doesn’t necessarily mean you owe taxes on that money.
You might receive one Form 1099-A if your mortgage lender canceled some or all of your mortgage, or you were involved in a short sale of your home. Why? Canceled debt is income in the eyes of the IRS — and it’s generally taxable.
Form 1099-B coverx income from the sale of several types of securities, as well as some types of bartering that take place via bartering exchanges, typically websites. In that case, the exchange might “1099 you” for the income you received. A 1099 isn’t usually required if you barter with someone directly, though you may have to report the income.
If you persuaded a credit card issuer or other lender to settle your debt for less than you owe, you’re not entirely off the hook. The amount the lender forgives is likely taxable income, and the 1099-C tells all.
You might receive a 1099-CAP if you hold shares of a corporation that was acquired or underwent a big change in capital structure and you got cash, stock or other property as a result.
One of the most common flavors of this form, the 1099-DIV reports dividends you received. This doesn’t include dividends on your share account at the credit union. The IRS considers those interest, so they appear on another 1099: the 1099-INT.
If you received money from the state, local or federal government — including a tax refund, credit or offset — you might get one of these. If you were on unemployment during the year, you might also have a 1099-G headed your way.
If you earned more than $10 in interest from a bank, brokerage or other financial institution, you’ll receive a 1099-INT.
If your long-term care insurance paid out benefits during the year, the insurer will likely file a Form 1099-LTC. If you received payments from the accelerated death benefits of a life insurance policy, those are reported on this form, too. (Learn more about using life insurance for long-term care here.)
This is a catch-all for income that doesn’t fit into other 1099 categories, though it does have some specific purposes. Income from prizes and awards are examples.
You might receive Form 1099-OID if you bought bonds, notes or other financial instruments at a discount to the face value or redemption value at maturity. Typically, the instrument must have a maturity of more than one year.
If you belong to a co-op and received at least $10 in patronage dividends, expect to see Form 1099-PATR in your mailbox.
You scrimped and saved to build a decent 529 account for your child’s college tuition … and this shows up. Yes, the 1099-Q reports money that you, Junior or Junior’s school receive from a 529 plan. Keep in mind, however, the earnings in a 529 plan are generally not subject to tax when they’re used for qualified education expenses, so for many people, the 1099-Q is just record-keeping. (Read more about how to optimize your 529 tax strategy.)
If you got distributions from a pension, retirement plan, profit-sharing program, IRA or annuity, you might receive a 1099-R. (Remember, many retirement plans are tax-advantaged, so this form might be simple record-keeping on behalf of the IRS.) If you took a loan from your retirement plan, you might have to treat it as a distribution, which means it might be on this form, too, as well as permanent and total disability payments under life insurance contracts.
Anybody responsible for closing a sale or exchange of real estate furnishes this statement to you, reporting the proceeds. Again, the proceeds from the sale of your house or other real estate aren’t necessarily taxable, so do your homework.
This is the form you’ll receive if you took any distributions from your health savings account, Archer medical savings account or Medicare Advantage. Remember, HSA and Archer distributions generally aren’t taxable if you use them to pay for qualified health expenses. So again, for many people a 1099-SA is simply proof that the money left the account and went to you.