Breaking down the 1099 tax forms.

1099 Tax Rules: Breaking Down the Form

Posted June 25, 2015 by Jacob Donelly in Keeping Compliant
Your taxes don't have to be overwhelming if you're a freelancer or consultant — we're breaking down the various rules and regulations of the 1099 tax form.

As consulting and freelance work become more and more common, tax forms get more and more confusing. But they don't have to be. We're breaking down the 1099-MISC tax form for you. The 1099 tax form reports any miscellaneous payments made by businesses to non-employee individuals during the past business year. So if you've consulted outside of your full-time job or freelanced this past business year, you're set for the next tax season.

(Are you a full-time employee? We broke down the W-2 tax form here.)

While there are over a dozen different types of 1099s, for the sake of this article, we’ll focus in on the common MISC version.

1099 Tax Form Requirements

The 1099 is a document that a business must sent to a non-employee individual if:

  • If your business paid $600 to another individual for any reason during the past business year. That can include rent, goods and services, awards, payment for work, crop insurance payments and more. 
  • Your company paid at least $10 in royalties or broker payments in place of dividends and/or interest.
  • Any proceeds from fishing boats.
  • Attorney services that grossed over $600.

If any of the above situations are true for you, then you are going to have to mail a 1099-MISC to that business or individual. And, if you are the individual/business that received payments as described above, you should expect to receive the tax document in the mail. 

What Your 1099-MISC Includes

Before you even get to the 1099, make sure your employer has given you a W-9 and you've filled it out. The W-9 will include all your pertinent tax information: name, social security number or tax identification number and address.

At the end of each business year, employers will fill in the 1099 with information provided from the W-9. You should receive the 1099 by January 31st of each year (businesses will pay a fine from $15-50 per person if they're late).

If you are the lucky recipient of a 1099, you might be a little confused about what it all means. However, the truth is that the document is actually very straightforward.

The document is broken down in a few separate sections. The first section on the top left is the business' address and company name. You'll find your tax information from your W-9 directly beneath that. 

The rest of the 1099 is defining exactly what kind of income you received. The different options are:

  • Rent: If you rented anything to someone, the amount of money you received will be here.
  • Royalties: The is all types of royalties you’ve received, including from artistic work you’ve done and royalties received from oil-and-gas mining operations.
  • Federal Income Tax Withheld: In the event that you refused to give your W-9 and tax information to the employer, this would list how much money they withheld from your pay.
  • Fishing Boat Proceeds: If you had value assigned to what you caught on your boat and sold it, the income would be here.
  • Medical & Healthcare Payments: Did you get hired as a physician to give the flu vaccine? This is where the company reports what it paid you.
  • Nonemployee Compensation: This is the box that most of us know. If you are a freelancer and earned more than $600, that would go here. If you were let go as an executive and received a golden parachute (big lump sum of cash), that would go here.
  • Crop Insurance Proceeds: If your crops were destroyed and you received insurance for that, that amount would go here.
  • Gross Proceeds Paid to an Attorney: If you were hired as an attorney, the amount you billed would go here.

For the most part, though, you’re going to receive a 1099-MISC that has the nonemployee compensation filled out. If you, like me, do your writing as a freelancer, that’s what you’ll receive.

Justworks Handles it All

As an employer or employee, tax documents can be a hassle. Fortunately, Justworks handles it all for you. The software prepares the 1099 for your company and you can mail them out so that they get there on time. There’s no reason to pay fines because you were a few days late.

Hire, classify, and manage your freelancers legally.

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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.