National Ice Cream Day Check out your local Mickey D's (McDonalds) as they might be giving away FREE Softserve ice cream
It’s tax time again and you must be sure to receive all the necessary forms. What is a 1099 tax form and who gets one? A Tax Form 1099 is used to report income other than wages, salaries and tips. Here of late, this term is used more and more frequently as many employers are opting to use contract labor versus hiring employees, who can turn out to be quite expensive when you factor in the insurance, payroll taxes, and other possible liability. If you had an independent contractor perform $600 more of services to you or your business, you are required by law to complete and deliver a 1099 form to that person or business. This article will take a look at the different 1099 tax forms, their purpose, who can receive one, and why.
The 1099 tax forms, if you are the recipient, should be furnished to you by January 31, 2006, and must be furnished and filed by the company furnishing the form no later than February 28, 2006. But which 1099 form will you receive?
If you are classified as an independent contractor (i.e. attorney, guest speaker, performer, physician, rent, etc.), or you receive income that is classified as non-employee income, or miscellaneous income (you were paid $600 or more) you will receive what is known as a 1099-Misc.; these are the information returns most often received for contract for-hire work, leased workers, or general contractor payments for which there is not a direct sale as a merchant to a consumer.
The other most often used 1099 tax form would come as a 1099-Int; this is a 1099 received for interest income purposes; whether the income be from a bank or any lending institution, or from the sale of a seller financed mortgage, the recipient of any income from interest will receive a 1099-Int. You would receive a statement that summarizes your interest income for that year. This form is also used to report other tax items related to your interest income such as early withdrawal penalties, federal tax withheld and foreign tax paid. A close relative of the 1009-Int is the 1099-OID. This is an information return provided when you receive an original issue discount, usually from transactions related to mortgages served by the Federal Housing Authority.
The 1099-Div tax form is used often for investors. This tax form is sent to investors by brokers, mutual funds or the investment company. The form is a record of all taxable gains and dividends paid to an investor. The amounts that are stated on the form represent amounts the fund companies are attributing to each investor’s investment return for the year. The amounts on the 1099-Div could contain ordinary dividends, total capital gains, qualified dividends, foreign tax paid, federal income tax withheld and foreign source income.
Another 1099 can come as a 1099-B for barter exchange transactions. What does this mean? It means that instead of monetary payment, you received a bartered form of payment, an exchange of something other than money, with value attached in order to pay for a service.
Other less used 1099’s are 1099-A, 1099-C, 1099-CAP, 1099-LTC, 1099-Q, 1099-R, and 1099-SA; the R, Q and SA are for retirement and social security payments, and are received by many retired individuals. The payments from IRAs, MSAs, Coverdell ESAs, and HSAs are reported on these 1099s. The 1099-A is received is there has been an acquisition of secured property, or an abandonment of secured property.
1099-C is received if there is a cancellation of debt, as from a bankruptcy proceeding, credit card default, or other failure of a maker to make good on a debt that the lender or seller can use as a tax deduction. The 1099-CAP is a 1099 used to report significant changes in corporate control and capital structure. What does this mean in laymen’s terms? If you and several other individuals are in business together, as an incorporated entity, and 3 of you buyout another individual, you will be required to furnish that individual with a 1099CAP so that the individual reports any income or gain from the capital sale of stock.
A 1099 tax form that we’ve not seen very much until recently, but one that I’m sure we’ll see much more of in the not too distant future is the 1099-LTC. Long-term care and accelerated death benefits are filed on this 1099; with a larger segment of our population aging, this segment also known as the “baby boomers” will make more use of long-term care insurance and payouts, and many of them will receive these types of 1099s.
Although these are most often forms of taxable income to the recipient, this is not always a steadfast rule. For many of the older citizens, for individuals receiving the tax returns as part of a discounted program through the government, and for certain other situations, these are only information tax returns that do not result in added income tax liability. For the rest of us, however, a 1099 tax form usually means we have increased our income tax liability.