What is a 1099 and Why Am I Getting One?

February 28, 2023

This overview is intended to be high-level and cover a few key details to help in your understanding of IRS form 1099.

BY: Thomas Manetta, Wealth Advisor

TOPLINE:

When you get a 1099 NO taxes are withheld. It is your responsibility to pay those taxes at the end of the year.

The IRS 1099 Form is a collection of tax forms documenting different types of payments made by an individual or a business that typically isn’t your employer.

If you expect to pay $1000 or more in taxes it is your responsibility to pay estimated quarterly taxes.

The biggest difference between a traditional W-2 form and a 1099 is the treatment of withheld taxes.

It’s tax season…again, and many people are starting to get or have already received their W-2 wage statements from their employers and are gearing up for filing their tax returns.

Post pandemic, there are more and more people who have side jobs or have supplemental income through careers that allow them to work remote or as contract employees. As a result, they will not be getting traditional W-2 tax forms and will instead be sent IRS form 1099.

What exactly is form 1099 and how is it different from a W-2 and what should you be concerned with if you are getting one?

First, it’s important to know that a 1099 is sent to both you AND the IRS by whomever has paid you throughout the year. Second, the biggest difference between a traditional W-2 form and a 1099 is the treatment of withheld taxes. When you get a 1099, you will notice that NO taxes are withheld. It is your responsibility to pay those taxes at the end of the year and if you expect to pay $1000 or more in taxes it is also your responsibility to pay estimated quarterly taxes as if you were withholding taxes yourself. If you are unsure how much to pay each quarter, the IRS has convenient calculators to guide you.

What exactly is an IRS 1099 Form?

The IRS 1099 Form is a collection of tax forms documenting different types of payments made by an individual or a business that typically isn’t your employer. The payer fills out the form with the appropriate details and sends copies to you and the IRS, reporting payments made during the tax year. In some instances, a copy must also be sent to your state taxing authority. The payer is responsible for filling out the appropriate 1099 tax form and sending it to you. Such payments can be for rental income, earnings working as a freelancer or independent contractor, a tax refund received from your state or locality, gambling winnings, and more.  Most 1099 forms are required to be provided by January 31, but in certain instances, this date is February 15.

Some common examples when you might receive a 1099:

  • If you earned $600 or more in nonemployee compensation from a person or business who isn’t typically your employer, you should receive a Form 1099-NEC
  • If you earned $600 or more in rent or royalty payments, you should receive Form 1099-MISC
  • If you received a state or local tax refund during the previous year, you should expect to receive Form 1099-G
  • Likewise, if you paid a freelancer, independent contractor or other nonemployee $600 or more during the year related to your trade or business, you likely should send them a Form 1099-NEC.

Who sends 1099 forms?

Several types of 1099 forms exist to document payments made between an individual or business and another party. Because 1099 forms record payments, many people can receive various 1099 forms for different reasons.

  • One of the most popular 1099 forms is the 1099-NEC for Non-Employee Compensation payments. For example, if you’re an independent contractor or freelancer, you may receive a Form 1099-NEC documenting payments made to you throughout the year from a particular payer.
  • Non-Employee Compensation payments below $600 don’t require filing the 1099-NEC, though the payer may still choose to do so.

What to do if you don’t get all of your 1099 forms?

Even if you don’t have the appropriate forms, you’re still responsible for paying the taxes you owe. If you didn’t receive a 1099, you need to report the income received on your tax return in order to avoid a bill from the IRS for owed taxes and possible penalties.

If you haven’t received all of your 1099s by the January 31st or February 15th deadlines, contact the person or business responsible for sending you the 1099. Request that they send you a copy of your 1099 so you may file your tax return on time. 

Seek out and work with a tax expert who understands independent contractors and freelancers. Your tax expert will do your taxes for you and search for all deductions and credits, so you don’t miss a thing.

This information does not constitute legal or tax advice and should not be used as a substitute for the advice of a professional legal or tax advisor. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor. Perigon Wealth Management, LLC (“Perigon”) is a registered investment adviser. More information about the firm can be found it its Form ADV Part 2 which is available upon request by calling (415) 430-4140 or by emailing [email protected]

Written by Thomas Manetta

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