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1099 Tax Form and Instructional Guide

The Internal Revenue Service (IRS) created the 1099 form to differentiate sources of income, such as money earned from self-employment, royalties, or prizes. You may receive a 1099 tax form if you are an independent contractor or earn an income through untraditional means. 

You will need to use whichever 1099 form you receive or issue to complete your taxes, as the government also gets a copy of the document. Find out more about how Form 1099 MISC 2021 changed and what it means when it is time to file your taxes.

Which 1099 Form Do You Need?

Did you receive a different 1099 form for 2021 than you usually do? The IRS frequently changes tax documents, and the agency altered the 1099 MISC – Miscellaneous Income tax form in 2020 when it reintroduced the 1099 NEC. 

The 1099 NEC – Nonemployee Compensation tax form is not new, as it existed before 1982. But the IRS reinstated it with the rise of the gig economy, such as:

• Ride-share drivers for companies like Uber and Lyft. 
• Independent contractors, such as project managers, that do not fit into the traditional employee category.
• Freelancers, like writers and accountants, who complete services for multiple clients. 
• Temporary and seasonal workers, including event staff, who have a limited employment period. 

Entities create 1099 forms to inform the IRS and the recipient of the total amount of money paid. The 1099 NEC tax form covers various types of non-employee income, while the 1099 MISC form is a catch-all for other earnings. 

It can be unclear, since the 1099 MISC form records some types of income, such as rent from residential and commercial properties. Although landlords may be self-employed, earnings from rent go onto the miscellaneous income form. 

When to Use the 1099 MISC Form

The 1099 MISC form is for miscellaneous income. The following are some of the reasons you would need to use a 1099-MISC:

• You own rental properties and collect more than $600 in rent in a tax year. Your tenants may need to complete a W-9. If you have commercial tenants, you may need to provide additional information depending on your tax status. 
• You won money totaling at least $600 from a game show, the lottery, gambling, etc. The entity that issued money should send you a 1099 with the amount of your winnings. For example, a radio station would send a 1099-MISC form if you won prize money.
• You paid for medical or legal services in excess of $600 to a health care professional or attorney. You may need to report payments to professionals if they relate to your profession. For example, you may have paid a doctor to treat an employee or a lawyer to handle a lawsuit. You may need to send the 1099 pay amount to the IRS and the entity you paid. 
• You receive crop insurance. If you are a farmer who experienced damage to crops, your insurance provider should send you a 1099 with the amount it issued.  
• You received royalties or broker payments instead of interest or dividends over $10. 
• You work on a boat, and your earnings are a share of the catch.
• You purchased or sold products for resale in excess of $5,000.
• You withheld federal income tax for someone. 

You may receive or issue a 1099 for other reasons as well. How you use the form for tax purposes depends on your reason for using a 1099. 

When to Use the 1099 NEC Form

The 1099 NEC form is for non-employee compensation. Self-employment income is taxed differently than earnings from a traditional employee. 

For instance, employers are responsible for withholding and paying a portion of taxes for their employees. If you are self-employed, you will need to pay your higher tax responsibility throughout the year by making estimated payments to the IRS. Self-employment tax is higher, since you are paying the portion that traditional employers would pay. 

You may need a 1099-NEC if you:

• Are an independent contractor, freelancer, or self-employed and earn more than $600 from a payee in a tax year.
• Are the sole proprietor of an unincorporated business. 
• Are the joint proprietor of an unincorporated business with only your spouse.
• Hired an independent contractor and paid them more than $600 in the tax year. 
• Need to report consumer product sales totaling $5,000 or more. 

You will need different tax documents if you are self-employed with an incorporated business, like an S-Corp or C-Corp. 

How to Get or Create 1099 Forms

Your clients typically send you a 1099 NEC if you are self-employed and you have earned more than $600 from them throughout the year. They may ask you to complete a W-9 – Request for Taxpayer Identification Number and Certification to gather the information they need to submit. 

Likewise, some entities may ask you to complete a W-9 if they need to create a 1099-MISC form for you. The information you will need to provide on the form includes the following:

• Your name as shown on your federal income tax return
• Business name (if different from your name)
• Your federal tax classification, such as individual, sole proprietor, C-Corp, etc.
• Your taxpayer identification number, like your Social Security number (SSN)
• Your signature confirming the information on the form is accurate
• Your address

You may need to create 1099 form online if you employed a freelancer, sold someone certain products for resale, or own rental properties. The IRS has a way for you to create 1099 online free of charge that lets you send the information electronically.

To create 1099 online forms, you can visit the IRS website. The agency lets you complete the forms electronically and print them at home. In addition to sending 1099 forms to independent workers, you need to send a copy to the IRS. Copy A goes to the federal government and Copy B goes to the contractor.