Your Guide to 1099s
diamondcpas
January 24, 2024
Your Guide to 1099s

Many taxpayers are familiar with W-2’s. You likely received one when you worked your first job. As you get older, it is common for your taxes and the paperwork surrounding your taxes gets more complicated. Maybe you make some investments, begin saving for retirement, buy a house, get married, and have a child. All these common milestones affect your tax return and can require paperwork support in the filing of your return.

One common piece of support that many adults begin to receive (or issue) is a Form 1099. Generally a 1099 is issued when you have received a certain type of income. There are different types of 1099s, so depending on the nature of your activities you may receive a 1099-NEC or a 1099-MISC.

If you are beginning to receive (or issue) 1099s this guide can help you understand in greater detail what that entails.

Before we dive in, it is worth noting there are nearly 20 different types of 1099 forms. However, in this article we will be covering 2 of the more common types, The 1099-MISC and 1099-NEC.

 

 

1099-MISC

 

What is the 1099-MISC form for?

The 1099-MISC (Miscellaneous Income) form is used to report income that does not fit into other standard categories on tax returns. It is typically used to report various types of miscellaneous income.

Who receives and issues a 1099-MISC form?

As mentioned, 1099-MISC forms general cover income not reported in other 1099 or tax forms. While it is a bit of a catch all, generally this form does include:

1. Rent Payments: Rent paid to individuals or businesses for the use of property, such as office space or equipment.

2. Royalties: Payments made for the use of intellectual property, such as copyrights, patents, or mineral rights.

3. Other Income: Various types of income, including prizes, awards, or other income not covered by other specific 1099 forms.

It’s important for individuals and businesses to issue a 1099-MISC to any person or entity to whom they have paid at least $600 in rents, services, prizes, or other income during the tax year. The recipient of the form must report the income on their tax return.

When are 1099-MISC forms due?

The due dates for filing 1099-MISC forms depend on whether you are filing on paper or electronically and whether you are providing the form to the recipient or submitting it to the IRS.

For tax year 2024, here are the deadlines:

1. To Recipients (Payees): The deadline for providing a copy of the 1099-MISC to recipients is January 31.

2. To IRS – Paper Filing: If you are filing paper copies of the 1099-MISC with the IRS, the deadline is February 28th.

3. To IRS – Electronic Filing: If you are filing electronically through the IRS e-file system, the deadline is March 31.

Failure to meet these deadlines may result in penalties, so it’s essential to adhere to the prescribed timelines.

 

1099-NEC

What is the 1099-NEC form for?

The 1099-NEC (Nonemployee Compensation) form is used to report income earned by individuals who are not employees, such as independent contractors, freelancers, or self-employed individuals. The form is specifically designed to report nonemployee compensation.

Who receives a 1099-NEC form?

Businesses and individuals should issue a 1099-NEC to individuals or entities who have provided nonemployee compensation totaling $600 or more during the tax year. Here are some steps to determine who should receive a 1099-NEC:

1. Amount Threshold: If you paid an individual or entity $600 or more for nonemployee compensation during the tax year, you generally need to issue a 1099-NEC. This includes payments for services, fees, commissions, or other forms of compensation.

2. Legal Structure: Nonemployee compensation can be paid to individuals, partnerships, LLCs, or other non-corporate entities. Corporations do not receive 1099-NECs.

3. Payment Type: If a payment is made to the contractor via a third party, like a credit card or through PayPal, then a 1099-NEC is not required.

This can sometimes make it challenging to make sure all proper 1099-NECs are issued. Especially if a business frequently works with service providers.

When are 1099-NEC forms due?

Like 1099-MISC, 1099-NEC forms have the same deadlines. They depend on whether you are filing paper or electronically and whether you are referring to the recipient or the IRS

For tax year 2024, here are the deadlines:

1. To Recipients (Payees): The deadline for providing a copy of the 1099-NEC to recipients is January 31.

2. To IRS – Paper Filing: If you are filing paper copies of the 1099-NEC with the IRS, the deadline is February 28th.

3. To IRS – Electronic Filing: If you are filing electronically through the IRS e-file system, the deadline is March 31.

Also like the 1099-MISC forms, failure to meet these deadlines may result in penalties.

 

We understand that when it comes time to file your taxes, a lot of accounting jargon can be thrown at you. This is one reason it can be helpful to have an accountant on your side to help break down the complex terminology and concepts so you never miss a deadline or form.

To learn more about working with one of our accountants, send us a message.

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