What is a 1099 Form?
A 1099 form is an official tax record used to report income that you receive from a person or entity other than your standard employer. Unlike a W-2, no taxes are withheld on 1099 income.
Definition and Purpose
The IRS uses a variety of forms to ensure that taxpayers accurately report their earnings. The 1099 form acts as an "information return." When a business, bank, or brokerage pays you money during the tax year, they are required to fill out a 1099 detailing exactly how much they paid you.
They send one copy of this form to you, and they send an identical copy directly to the IRS. This creates a paper trail, ensuring that the federal government knows about this income even before you file your tax return.
Common Types of 1099 Forms
There are actually over a dozen different types of 1099 forms, each corresponding to a different type of non-employee compensation. The most common variations you are likely to encounter include:
- 1099-NEC (Nonemployee Compensation): This is the form most commonly associated with independent contractors, freelancers, and gig workers (such as rideshare drivers). According to the IRS 1099-NEC instructions, a business must issue you this form if they paid you $600 or more for services during the year.
- 1099-K (Payment Card and Third-Party Network Transactions): This form reports payments processed through third-party networks like PayPal, Venmo, eBay, or Etsy. The reporting threshold for the 1099-K has undergone significant legislative changes recently, dropping to cover much smaller transaction volumes.
- 1099-INT and 1099-DIV: These report unearned income from investments. A bank issues a 1099-INT for interest earned (for example, in a High-Yield Savings Account), while a brokerage issues a 1099-DIV for dividends paid out by stocks and mutual funds.
- 1099-B: Issued by brokerages to report the sale of securities (like stocks or bonds), which you will use to calculate your capital gains.
What to Do When You Receive a 1099
When you receive a 1099 form in the mail (usually in late January or early February), you must keep it in a safe place until you are ready to file your taxes.
If you receive a 1099-NEC for freelance work, you will report that income on Schedule C of your tax return. Importantly, because you are considered self-employed, you will need to pay both ordinary income tax and the 15.3% self-employment tax on that income. You can use our Self-Employment Tax Calculator to estimate this liability. However, you are legally allowed to deduct your business expenses against this income to lower your tax bill.
