Tax season began this week, and there’s a good chance you’ve already received one or more 1099 tax forms. But what are they for, and why do you need to pay attention to them? Let’s break it down.
A 1099 form is used to document income received outside of a permanent salaried job. This includes money earned from gig work, interest, a real estate sale or a distribution from a tax-leveraged account, such as a health savings account. Any organization or individual you received a payment from is required to distribute this tax form to you by Jan. 31 each year; an employer is also required to distribute your W-2 form by this deadline.
It might be tempting to not report this money on your tax return, especially if the amounts are small. Remember that these businesses also send a copy of your 1099 forms to the IRS. Your tax return will be compared to what’s on file to see if there are any discrepancies, and if the numbers vary, you put yourself at greater risk of being audited.
Here’s what to know about the different types of 1099 tax forms, how to confirm you’ve received all your paperwork, and tips for an easier filing season.
How do I know what 1099s to look out for?
Any taxpayer can create a free ID.me account to see what forms they should expect to receive this year, since anyone issuing a W-2 or 1099 will also issue a copy to the IRS. Employees receive a W-2, whereas a 1099 form documents income you earned outside of W-2 earnings.
For some taxpayers, the majority (or even all) of their earnings in a given year will be 1099 income. Examples include someone who lives mostly off of Social Security income (SSA-1099), investment withdrawals (1099-B, 1099-DIV) or retirement account withdrawals (1099-R).
Other folks expect to receive both a W-2 and 1099s. An increasing number of people rely on side hustles and additional streams of income to make ends meet: 4 in 10 Americans have a side hustle, each making an average of $12,689 extra per year, according to a Harris poll commissioned by Zapier, a marketing automation company.
If you received one or more 1099s over the last few weeks, the first thing to do is create an account with the IRS and review the tax records associated with your Social Security number. Since the entity issuing your 1099 also has to issue it to the tax agency, you’ll be able to make sure you haven’t missed anything, according to Christina Taylor, Cash App Tax expert and head of eFile operations for Cash App. “I always recommend you pull your wage and income transcript [on ID.me] from the IRS first,” Taylor said.
Read more: CNET’s review of Cash App Tax to file your taxes online
Once you have all your documents, decide if you plan to work with a tax professional this year to file. Filing early in the season could result in quicker turnaround time — which could result in a faster refund if you’re owed one, according to Krystal Pino, certified public accountant and founder of Nomad Tax, a tax consultancy for digital nomads. “I tell people every day that we tax accountants are a lot less busy in February than we are in March and April,” Pino said.
The 22 types of 1099s
Here are all 22 types of 1099s, listed in alphabetical order.
Form 1099-A documents “acquisition or abandonment of secured property.” If you lost a property to foreclosure, your lender will send you this form so you can document capital losses. Over 300,000 properties had foreclosure filings in 2022, according to a report from ATTOM, a real estate data company.
If your foreclosure price didn’t cover the remaining balance of your mortgage, and your lender determines that you can’t pay it, they may forgive your debt. If this happens, also expect to receive Form 1099-C, since canceled debt is considered income.
Form 1099-B documents income from the sale of securities at a brokerage or barter exchange. If you sold stock last year, the gain or loss will be reported on a 1099-B. Even if you sold at a loss, be diligent about filing this form. You may be able to carry over some of your losses to the following year, offsetting tax potentially owed on future gains.
Form 1099-C documents the cancellation of debt. If your debt was forgiven, your lender will send that documentation to both you and the IRS. Your debt is considered taxable income in the year that it’s forgiven. Examples of canceled debt include property foreclosure or a charge-off on a credit card.
Form 1099-C does not apply to most debts discharged from bankruptcy.
Form 1099-CAP documents “changes in corporate control and capital structure.” If you owned stock in a company, and the company was acquired or underwent a substantial change in capital structure, you may have to report any cash, stock and/or property that was gained as a result of this change.
Form 1099-DIV documents income earned from investment dividends and distributions. If you have a brokerage account that holds stocks or mutual funds, and these investments paid out dividends, that counts as income. This dividend income does not apply to dividends accrued in tax-sheltered retirement accounts, such as a 401(k) or IRA.
Form 1099-G is used to report unemployment compensation or other certain government payments, such as refunds on state or local taxes, taxable grants or payments from the Department of Agriculture.
Form 1099-H documents payments made in advance to help offset certain qualifying health insurance expenses.
From 2002 to 2021, the Health Coverage Tax Credit provided relief to taxpayers receiving Trade Adjustment Assistance (TAA), reemployment TAA or benefits from a Pension Benefit Guaranty Corporation. This legislation helped reduce health insurance costs for vulnerable Americans in the form of a tax credit.
There are legislative efforts to make this program permanent, but negotiations are stalled in the US Senate as of this writing. If you are filing or amending returns from past years, you may encounter this form.
Form 1099-INT documents interest you earned on savings. For example, if you have a high-yield savings account, and the interest on that account came out to $50 this year, both you and the bank are required to report that money as income, and you’ll owe taxes on it.
Banks are diligent about sending out 1099-INT forms in a timely manner. If you only receive paperless statements, you’ll likely receive this form electronically.
Form 1099-K documents income you received via third-party payment processing platform. It’s similar to nonemployee compensation, but it means you received payment through PayPal, Venmo or Cash App instead of directly from the business.
Previously, payment processing companies only had to distribute a 1099-K if you had over 200 transactions that together amounted to $20,000 or more in income during a given year. The IRS has a goal to lower this threshold to $600 a year, but is rolling this threshold out in stages to prevent overwhelm for both the agency and taxpayers. For the 2023 tax year, expect a 1099-K if you received over $5,000 in payments from a third-party processor.
Tax experts say the new 1099-K conditions will be a bumpy ride at first, particularly because some taxpayers might get a 1099-NEC and a 1099-K for the same income. “Don’t report both, or you’ll be double taxed,” said Taylor. She also noted that a 1099-K form reports gross income. Since you likely paid fees to the payment processing platform in order to use their service, be sure to include these expenses in your deductions.
Form 1099-LS documents acquired interest in a life insurance contract.
The Tax Cuts and Jobs Act of 2017 added a new section to the Internal Revenue Code called section 6050Y. This code included new regulations for “reportable policy sales” of life insurance, and the IRS created two new 1099 forms to document this activity: Form 1099-LS and Form 1099-SB.
Companies and individuals will receive Form 1099-LS if they acquired a life insurance contract or any interest in a contract. For example, if a company acquired another company, and part of that company’s assets included life insurance holdings, the policy sale needs to be reported.
If a sale occurred, it must be documented with the IRS, and all parties involved will receive a 1099-LS as a result.
Form 1099-LTC documents income received as a result of long-term care or accelerated death benefits.
Long-term care insurance is a way for people to navigate the uncertainty of how much care they’ll need in their elder years. You may receive a 1099-LTC if your insurance policy is actively being used.
An accelerated death benefit is when a life insurance policyholder receives their benefits before death because they have been deemed terminally ill by a doctor. This benefit is intended to help cover medical costs and make the policyholder comfortable.
Form 1099-MISC documents miscellaneous income. If you received a payout of over $600 in a given year from a business, you should have received a 1099-MISC. Types of income include prize money, gross proceeds payments to attorneys and rental payments for space or equipment. Form 1099-MISC was previously also used to document nonemployee compensation, but this was discontinued in 2020 when Form 1099-NEC was reintroduced.
Because the MISC has turned into an actual miscellaneous category now and no longer includes compensation, “there’s not much that goes into that category anymore,” said Pino. Purchasing a house is now the most common reason for receiving a 1099-MISC, according to Pino, since you’ll have one-time property tax and mortgage-interest deductions.
Form 1099-NEC documents nonemployee compensation. You’ll receive this form if you were self-employed (gig worker, freelancer) or did independent contractor work amounting to over $600 last year.
As mentioned above, this income used to be reported on the 1099-MISC until 2020. If you’ve been freelancing for years and no longer receive a 1099-MISC form but receive this one instead, that’s why.
If you’re on contract with a company but not a full-time employee, and you’re being paid based on contract terms, you should expect a 1099-NEC, according to Taylor.
If you receive independent contractor income, the IRS will classify you as a sole proprietor, even if you don’t have a formal business entity, and you may owe self-employment taxes on the income.
Form 1099-OID documents an “original issue discount.”
When you purchase a bond for less than its face value, that’s called an original issue discount. You’ll redeem the bond at its face value when it matures, and the IRS considers the difference between the two to be taxable income.
Form 1099-PATR documents “taxable distributions received from cooperatives.” If you are part of a cooperative, such as a farmer’s co-op, and you received distributions or profits from the cooperative, you’ll also receive this tax form.
Form 1099-Q documents “payments from qualified education programs.” If you received distributions from a 529 plan or Coverdell education savings account (CESA) for education expenses, you’ll receive this form to document that income. The income may or may not be taxable.
Form 1099-QA documents distributions made from an ABLE account. The Achieving a Better Life Experience Act of 2014 helps people who experienced the onset of a disability before the age of 26 save and pay for disability-related expenses using a tax-advantaged 529A ABLE account.
Many taxpayers who have a disability rely on public policy programs such as Supplemental Security Income (SSI) or Medicaid. These programs have low ceilings for how much income you can earn. For example, your monthly earned income must be under the Substantial Gainful Activity (SGA) threshold of $1,470, or $2,460 if you are blind. ABLE accounts were created to help taxpayers and their loved ones contribute to a savings account that can help pay for expenses associated with having a disability, and this wealth is not considered when determining eligibility for SSI or other programs.
Contributions to an ABLE account are post-tax, and any interest accrued in these accounts will be tax-free. Any distributions from these accounts will be documented on Form 1099-QA.
Form 1099-R documents “distributions from pensions, annuities, retirement or profit-sharing plans, IRAs and insurance contracts.” If some of your income is coming from these sources, expect to receive a 1099-R.
Form 1099-S documents profits from a real estate transaction. If you sold real estate that appreciated in value, this difference is subject to capital gains tax. However, there are potential exemptions from this taxable gain.
The Taxpayer Relief Act of 1997 gives many homeowners relief from this tax liability. If the home you sold was your primary residence, and you lived in it for at least 24 months, you are exempt from the first $250,000 of the gain ($500,000 if married and filing jointly). This exemption can only be applied every two years.
Form 1099-SA documents “distributions from a Health Savings Account (HSA), Archer MSA or Medicare Advantage MSA.” Whenever you make a withdrawal from a health savings account, the account holder will send you a 1099-SA to report this income.
HSAs offer triple tax savings. The money you deposit in a health savings account is tax free before deposit and tax free upon withdrawal, and any interest earnings will be tax free as well. To be eligible for this tax benefit, your distributions must be used for qualifying health-related expenses.
Form 1099-SB also documents the sale of a life insurance policy, but this form is filed by the original issuer of the policy after they have received a 1099-LS to document their investment and the surrender amount. The issuer must also file Form 1099-SB if the policy has transferred to a foreign person.
There are substantial rules and regulations for reportable policy sales, and these rules are fairly new. Consider working with a tax professional if you are a company or individual working with 1099-LS and 1099-SB forms.
The SSA-1099 documents Social Security benefits income. Noncitizens who live outside the US receive a version of this form called an SSA-1042S. The SSA-1099 and SSA-1042S aren’t distributed to people who currently receive Supplemental Security Income (SSI).
Social Security income is taxed, but the amount of income that’s taxed varies depending on several factors. If you need a replacement form, or want to check the status of your Social Security payouts, you can take care of that at SSA.gov. Replacement forms are typically available after Feb. 1.
What should I do if I don’t receive all my 1099s?
All 1099s are required to be sent out to recipients by Jan. 31 of each calendar year. If you still haven’t received your documents either by mail or electronically, reach out to the issuer for assistance.
If the person or company is not planning to issue you a 1099, you can still claim it as other income or self-employment income on your return, said Taylor.
However, if you still haven’t received your forms by Feb. 28, check your ID.me account to see if a copy was issued to the IRS. As a last resort, you can call the IRS, and they can advise you on whether you can use Form 1099-R as a substitute to document the missing income.
Get your taxes organized today
Having multiple sources of income can feel like a tax headache at first, but once you know the different ways income gets classified, the process becomes much easier. Being organized can help ensure a low-stress filing season.