Being a freelancer or having a side business going on, you might have come across IRS Form 1099. But what exactly is the 1099 Form, how do you file it, and what are the different types of 1099 Forms? Here’s a complete guide for a self-employed bagging some extra income apart from the salary to prepare those 1099 forms as the 1099 deadline approaches during the tax payment season. Let us know how 1099 Tax calculator works to calculate tax.
Let us know what is Form 1099
Form 1099 also known as ‘Information Return’, is one particular type of IRS (Internal Revenue Service) tax form used by U.S. taxpayers to file an information return to report different sorts of income other than regular salaries and wages.
Taxpayers are required to state all forms of outside revenue which includes freelance compensation, interest amounts from banks, dividend, rents, royalties or lottery amounts to the IRS. Such income sources are regarded as income from on-employment-related sources. Organizations and businesses issue 1099 forms to all the taxpayers whose outsource income values $600 or more.
To keep a proper record of a person’s other income that is not recorded as a wage or salary, there are as many types of 1099 forms as there are numerous ways to earn non-employment income. Let’s take a look at some common types of 1099 forms!
Different types of 1099 Forms
1099-INT
1099 INT stands for interest-based income. This form is used to file information return on interest income that is acquired generally from banks, brokerage firms and investment companies. 1099 INT is applicable for taxpayers who are receiving interest of more than $10 yearly.
1099-DIV
1099 DIV stands for dividend-based income. This form is used to report information return on dividend income that is acquired typically from a stock or mutual fund. A dividend is basically a corporate profit or reward distributed to eligible shareholders. 1099 DIV is applicable for taxpayers who are receiving dividend revenues of more than $10 yearly.
1099-G
1099-G stands for government-based income. This form is used to report information returned on government payments received from federal, state, or local governments. A government-based revenue could be a local tax refund or unemployment benefits. 1099 G is applicable for taxpayers who are receiving such unemployment compensation payments.
1099-NEC
1099-NEC stands for Non-employee Compensation. This form is used to report information on the income received for services performed by freelancers, independent contractors, sole proprietors or entrepreneurs and self-employed individuals. 1099 NEC is applicable for taxpayers who are receiving nonemployee compensation payments worth $600 or more in a year.
1099-R
1099-R stands for retirement-based pay-out. This form is used to file information on the income received from retirement plans, pensions and IRAs (Individual Retirement Account). It is also applicable on annuities received from an insurance company and certain profit-sharing programs. 1099-R is applicable for taxpayers who are receiving retirement payments of $10 or more annually.
1099-B
1099-B stands for Broker and Barter Exchange Transactions. This form is used to file information return on the transactions from a broker such as stocks sales, commodities, foreign currency contracts or debt instruments. 1099-B is applicable on taxpayers receiving capital gains and losses trading through brokerages and barter exchanges.
1099-MISC
1099-MISC stands for miscellaneous income. This form is used to file information return on income that are not mentioned in other 1099 forms. Money received from legal settlements, awards or prizes, medical and health care payments, and payments made to attorneys. 1099-MISC is applicable on taxpayers receiving at least $10 miscellaneous income via royalties. It is also used when a direct sale of at least $5,000 of customer products is made to a buyer for re-selling anywhere other than a permanent retail establishment.
Although freelancers must file 1099-NEC forms, freelancers hired through a freelance marketplace, such as freelancer or Upwork, may not receive a 1099 unless the pay surpasses a specific edge.
Things to keep in mind while filing a 1099 form
A registered business in the US need to send 1099 forms to all their non-employees, who have been paid $600 or more for their services during a year.
Let’s take a look at the most proficient method to file a 1099 form.
There are two records of Form 1099, referred to as Copy A and Copy B.
- Copy A: It is prepared by business and organizations on which they report the payment made to the independent contractor hired by them. It is then submitted to IRS. The same is reported on Copy B and send it to independent contractor.
- Copy B: The independent contractor receives this copy from the client. The income listed on Copy B is reported to the independent contractor’s income tax return.
- What are the important information that are required?
Before filing a 1099, gather these few details for every self-employed entity: –
- Their legal name (Name in the official documents)
- Their complete address
- Their taxpayer identification number
- Total amount paid to them during the tax year
You can assemble this information by asking your contractors to fill out Form W-9 and once you have all of the details, fill out 1099 form.
- Copy A must be submitted to the IRS
You can submit the file both ways. One you can submit physically and second you can submit online.
- Copy B is submitted to the independent contractor
Copy B can be downloaded on IRS site and then send it to the independent contractor.
- Submit 1099 forms with your state
1099 Forms need to be submitted to the state depending on where the business is based. Consult a CPA to know the details about state’s 1099 filing requirements.
How much tax to be paid by a 1099 employee?
A 1099 employee has to pay both income tax as well as self-employment tax. Various factors decide the amount of tax to be paid such as your annual earning and number of tax-write-offs you discover. With Flyfin’s 1099 tax calculator, you don’t have to worry about your tax calculation. It makes the task of calculating your self-employment income tax easy.
As a freelancer, you are eligible to pay your taxes using the IRS’ Estimated Tax Worksheet. For that you can use Flyfin’s 1099 tax calculator for the same which simultaneously also helps in lower your taxes.
The more deductions on your tax, the less you’ll have to pay. The most reliable and convenient way to lower your taxes is to use the 1099 tax calculator powered by A.I. and helps you track your expenses. It operates automatically and tries to maximise your deductions related to your profession.