What is a 1099 Tax Form, Why Might You Receive One, and Why is it Important?

A 1099 tax form is for taxpayers who’ve made non-employment income. Form 1099 is typically used by independent contractors (1099-NEC), but there are over 20 varieties that a person may use to file their taxes. If you’re wondering why you received a 1099 or if you need one, read on.

Form 1099 is used to calculate non-employment income to the IRS, like dividends or payments received by independent contractors. However, you only need to file a Form 1099 when you receive $600 or more in non-employment income per year, with some exceptions.

Out of the over 20 Form 1099 varieties you’ll come across, you’ll likely need the following:

Self-employed individuals are subject to a 15.3% tax rate, which probably shocked you the first time you saw it. Compared to employee income tax, which ranges from 7%-10%, 15.3% seems pretty high, but that’s because you’re taking on the employer and employee portion of the tax.

The 15.3% self-employment tax rate is split into Social Security tax (12.4%) and Medicare (2.9%). It’s easy to feel intimidated when you calculate 1099 tax, but there are ways to lower it.

Taxpayers should know what forms they have to send to the IRS, so if you’re expecting to receive a 1099, but it hasn’t been sent to you before February, contact your employer or payer. You’re responsible for paying the taxes you owe on time, even if you don’t receive your forms.

If you changed your address recently, your forms might get lost in the mail. Inform the IRS immediately to receive your 1099. That way, you can add these numbers to Form 1040.

On the other hand, if you haven’t received the expected 1099 for income earned, you may be able to report it under miscellaneous income (1099-MISC). For this reason, it’s important to keep track of your income to ensure you aren’t overreporting or underreporting to the IRS.

Your payer will send you a copy of your 1099 to you and the IRS. Think of the 1099 like a W-2, except the 1099 won’t show you the taxes withheld by your employer because they won’t deduct that amount for you. Most income on the 1099 is taxed unless you can deduct it.

Since the IRS receives your 1099s from your payers, you don’t need to send your copies with your Form 1040. Your 1099s serve as proof of income, similar to the W-2 for employees.

It’s essential to report all of your 1099s, even if the amount on the form is under $600. The IRS uses computerized matching to find discrepancies in your files. If the IRS received a 1099 and you don’t add that amount to your Form 1040, you’ll be audited, so don’t risk it.

Any errors on your 1099s should be reported to your payer immediately. There may be time to correct your payer’s documents, which is in your best interest. If your payer already filed your 1099s, ask for a correction to ensure the IRS doesn’t add both forms together.