Information reported on a Form 1099 is used to fill out a person’s Form 1040 as part of a federal income tax return.
In the United States, corporations, small businesses, and other employers use a variety of forms to record income earned by employees and independent contractors. Typically, employees of a company in the United States receive a W-2 form that lists the income they received during the year. This form also contains deductions from that income in the form of federal and state taxes, deferred compensation, and Social Security contributions, to name a few. A form 1099 is used for a variety of reasons, but it is typically provided to an independent contractor – also known as a freelancer – as a record of the income he or she has received from a particular company. Other versions of 1099 can be used to report different types of income, such as interest, dividends, proceeds from real estate sales, and debt cancellation.
Interest income earned by a taxpayer is reported on a 1099-INT form.
On a typical form 1099, such as the 1099-MISC, the income earned will be noted, but there will be no deduction for federal or state taxes, nor any deferred compensation, social security, or medical deductions that may be noted. The recipient of the 1099 form is not an employee of the company, so the company is only obligated to offer the revenue to the contractor without any deductions. This income is also reported to the Internal Revenue Service (IRS) so that it can track and tax the income earned by self-employed workers. A freelancer is required to calculate their own taxes and forward those payments to the IRS.
Many companies have started to hire independent contractors to work on specific projects.
People who receive 1099 forms come from a broad spectrum. Actors, artists, novelists, freelance writers and similar creative artists are usually paid for work and not treated as employees. Many companies have started to hire independent contractors to work on specific tasks. This helps keep employer costs low because the employer does not have to pay for items such as health insurance or life insurance and does not have to make contributions to retirement plans. Upon completion of the task, the employer can terminate the employment relationship and simply issue the independent contractor a form 1099.
An electrician can work as an independent contractor.
Many other versions of a 1099 form may also be issued. A 1099-INT, for example, is used to denote interest the taxpayer has earned. A 1099-G form denotes items such as tax refunds and credits received. A 1099-R is for distributions from retirement plans, annuities, pensions and the like. In all, there are more than 20 versions of the 1099 form.