The Types of 1099 Form and How They Differ
From the outside, freelance writing seems glamorous. You work from home, have your boss, and writing is a fun job. That said, there are numerous challenges involved with being self-employed. One of those challenges is figuring out what to do with your 1099 tax forms.
There are different types of 1099 tax forms, and they each serve another purpose. Here’s what they are and why you received them.
What It Means to Be a 1099 Employee
First, if someone employs you, you’ll receive an employee W-2. This form is sent to you by your employer with your pay. It details your income, Social Security taxes paid, Medicare taxes paid, and federal income tax withheld. It also shows how much tax is taken out of your paycheck.
On this form, you’ll find your cash wages, tips, commissions, and any reported payments you received.
A 1099 form is typically issued when:
You receive a payment that wasn’t paid by regular payroll
You received a distribution from a retirement plan
You received a payment from a corporation
You received a payment that was not reportable on a W-2, including a 1099-R from an insurance company
The 1099-NEC Form
The 1099-NEC form is also called the Nonemployee Compensation Form. It’s issued when you receive payments for a service you provided to a client who is not your employer. This can include:
Clients of an independent contractor
Clients of a freelance writer or designer
Data providers
Nonemployee compensation can range from a one-time payment to a series of payments over time. It’s typically paid to a small business owner even if there is no formal employer/employee relationship.
Your Social Security taxes and Medicare taxes aren’t withheld on the 1099-NEC form, so you must pay these taxes yourself.
The 1099-MISC Form
The 1099-MISC is also called the Miscellaneous Income form. It’s issued when you receive income such as rents or royalties. It’s used for nonemployee compensation. This includes cases like:
When you earn income from a freelance writer or designer
When you provide services to a person or a business
When you receive rents or royalties
When income is paid to a corporation
The 1099-K Form
The 1099-K form is used to report merchant card and third-party network payments. This means store cards, which are credit or debit cards issued by a specific merchant. The 1099-K form is issued by the third-party payment processor, who is generally responsible for reporting the payments.
It’s also issued for payments made to legal and accounting professionals, taxi cab drivers, farmers, and others not directly employed by the business.
The 1099-INT Form
The 1099-INT form is also called the Interest Income form. It’s issued when you receive income interest on your bank accounts, bonds, CDs, etc.
The 1099-DIV Form
The 1099-DIV form is also called the Dividends and Distributions form. It’s issued when you receive dividends or distributions from a corporation. These distributions are often paid to people who are shareholders in a company but not employees.
The 1099-R Form
The 1099-R form is also called the Distributions From Pensions, Annuities and Retirement Plans. It’s issued when you receive distributions from IRAs, 401(k)s, IRA distributions, and other retirement plans.
Conclusion
It is essential to understand what 1099 tax forms are and when you’re required to receive them. You probably received one or more of these forms if you're self-employed. Now you know what to do with them.
Tottax is a tax and accounting agency helping small businesses and their owners solve accounting problems. We do personalized business consulting, including tax planning and filing in all 50 states, depending on your needs and goals. No matter your situation, you can always master your finances and optimize your taxes with TotTax at your side! If you need assistance with your self-employed tax returns, we’ve got you covered. Get in touch with us today and let us know how we can help!
