If you aim to have a global team, you may need to hire independent contractors. When you work with contractors, you’ll have to be familiar with the 1099 form. This is the form they’ll use to file their taxes for the payments you make to them. You cannot file your contractor’s taxes, but you should help them secure the appropriate tax forms.
It's crucial to know the various types of 1099 tax forms. Knowing the right tax forms to issue makes life easy for you and your team. On the flip side, issuing the wrong 1099 form may delay the tax filing process, which can lead to late tax payments and fines for your workers.
This guide will teach you what a 1099 form is, its use, and the 1099 reporting requirements. You will also discover the various types of 1099 forms and see what they look like.
What is a 1099 form used for?
The 1099 form is a tax form for reporting income generated or money paid to non-employed individuals. It is an umbrella tax form. It covers various categories of people who receive money legally from sources other than an employer. In other words, this form is not for those who earn a salary.
The payer could be an organization or an individual. After paying or compensating a worker, the payer hands them a 1099 form. The payee then fills out the form with accurate details of payments received.
There are certain conditions or thresholds for those filing this tax form. The 1099 tax form is for those who earned up to $600 within a tax year. It implies that those who make less than $600 may be exempt from filing this tax form. Other variants of the IRS Form 1099 also have unique thresholds for filing taxes.
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Who collects the 1099 Form?
This form has two parts: A and B. Both parts must contain the same information. After completing the form, you will send “part A” to the IRS. When you pay an independent contractor over a year, they will get the “part B” portion of the 1099 form. In summary, the IRS and the taxpayer get the 1099 form.
Types of 1099 Form
You may be wondering if the 1099 or W-9 forms are better for employers. A W-9 is collected from an independent contractor prior to work and details information like their name, Social Security number, and address. Check out our complete guide to know if you should use a 1099 or a W-9.
It's important to learn the different types of 1099 forms, as there are about 20 of them. Each serves a unique purpose. If you’re a Robinhood trader or investor, some of these forms also double as Robinhood tax forms.
Here are the most common 1099 documents:
Employers use this independent contractor tax form to indicate the records for payments to a non-employee. The 1099-NEC form usually goes out every January. In this case, the recipient or taxpayer is typically a freelancer or independent contractor.
You will issue Form 1099-NEC to a freelancer or contractor when you pay them above $600 annually. However, you may not use this tax form for hiring contracting firms.
The 1099-MISC form is for reporting miscellaneous payments or earnings, which may include cash prizes, rent, or legal fees. This form will also show other local tax income withholdings from the earnings.
Until recently, employers used this tax form for payments made to independent contractors.
The 1099-S tax form pertains to transactions made in the real estate industry over a year. A business owner or client issues this form to a taxpayer for profits or exchanges for a land sale, building lease, or house flip.
An individual will receive a 1099-B form for transactions or participation in the sale, exchange, or transfer of bonds or stocks. The recipient must report these transactions even when they did not make a sale or profit.
Form 1099-R is for reporting earnings on a pension, retirement plan, insurance contract, or annuity. Although some payments from retirement may not be taxable, retirees should report all income.
This form is for individuals who received government benefits — especially unemployment benefits — within the past year. Holders will also find withholdings on their government-assisted earnings in the form.
Individuals who gain interest in investment over the last fiscal year will report their earnings on the 1099-INT. Financial institutions, individuals, and other entities generating investment interest will issue this form. The 1099-INT also summarizes the various interest types and their accompanying expenses.
Individuals who earn dividends from an investment within the previous year will file a 1099-DIV form. Banks and other financial institutions typically fill out and report these transactions to the IRS.
What does a 1099 Form look like?
The IRS Form 1099 looks similar to other tax forms, which you can find on the IRS website. Since there are many variants, a Form 1099 will boldly bear the variant’s title at the top.
Here’s what a 1099-MISC looks like:
What does a 1099 employee mean?
A 1099 employee is a term for individuals who work for an organization without being on their payroll. They are independent contractors or freelancers; this form helps determine 1099 employee taxes.
If a 1099 employee earns above $600 within a year, the employer issues them a 1099-NEC form. Employers must carefully define their role when hiring a 1099 employee to avoid misclassification. Misclassification can lead to serious penalties, fines, and legal trouble.
How Skuad can help you with 1099 Forms
A 1099 form enables non-employees to report their earnings. Navigating the tax filing process can be a challenge for anyone. That’s why many companies partner with an employer of record like Skuad.
Skuad provides its clients with a unified platform to hire, onboard, and pay global independent contractors. Contact a Skuad expert today to discover how we will help you ensure full compliance and transparency in all your tax filing endeavors. We make it easy to manage global teams so you can focus on growing your business.
Frequently Asked Questions about the 1099 form
What is a 1099 form for?
A 1099 form is a tax form for filing non-salary income for US residents and citizens. It has multiple variants for filing earnings from various sources, as there are several types of income — including retirement funds, government unemployment benefits, and independent contractor earnings.
Sending a copy of the 1099 form to the IRS is not always necessary. Filing taxes correctly and when they are due is more important. When the payer issues this form, the taxpayer or income receiver must ensure they receive the correct type.
If given the wrong 1099 form, the receiver can request the correct one.
Does a 1099 mean I have to pay taxes?
Receiving a 1099 form indicates that you earned a non-salary payment that you should record. It does not necessarily mean you have to pay taxes for various reasons — some types of income are subject to taxes while others are not taxable. Further, some payments may not reach the threshold for paying taxes for the year.
It is advised to document all income in a fiscal year, whether taxable or not. This practice can come in handy during auditing and helps to ensure compliance.
What is the difference between 1099 and W-2?
There is a clear difference between Form 1099 and Form W-2. While the 1099 form details non-salary income, the W-2 form shows the payment information of a salary income or account. Salary earners in the public and private sectors working for a US-based company will file Form W-2.
A W-2 tax form also shows the taxes withheld by an organization on behalf of an employee. US employers must withhold income taxes, Medicare, and Social Security contributions. These deductions come out of an employee’s paycheck.
The employer typically withholds and pays the taxes for W-2 taxpayers. Meanwhile, 1099 taxpayers receive a copy of the form from their client or associate and do their taxes by themselves.