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1099s Explained: Types

1099s explained types

Now that we know the basics of IRS Form 1099, we can take a closer look at the different types of 1099s you can receive. Remember, if you received any income outside your employer, you might receive a 1099. While most types of Form 1099 are not commonly received, there are a handful that you are likely to come across at some point. Here’s an overview of the different types of Form 1099.  

1099-MISC: Miscellaneous Income 

The 1099-MISC is an IRS form used to report $600 or more in miscellaneous income that you received during the tax year. Some examples of payments that require a 1099-MISC form include rent, prizes and awards, medical and health care payments, crop insurance proceeds, attorney payments, and more.  

1099-NEC: Nonemployee Compensation 

The 1099-NEC form is used to report non-employee compensation, including independent contractors, freelancers, sole proprietors, and self-employed individuals. If you received $600 or more in non-employee compensation during the tax year, you should receive a 1099-NEC. This form is used to report payments made for services rendered. These might include consulting fees, professional services, and other types of compensation. 

1099-INT: Interest Income 

Form 1099-INT is used to report any interest income you earned during the year. If you earned more than $10 in interest income, the financial institution is required to disburse a Form 1099-INT. The form will go both to you and the IRS. Interest income can include any earned from high-yield savings accounts, U.S. savings bonds, municipal bonds, and more. 

1099-DIV: Dividends and Distributions 

Form 1099-DIV is used to report dividends and distributions that are paid to you during the tax year, as well as any federal income tax withheld. This can include ordinary dividends, which are paid out of a company’s earnings and profits, qualified dividends, capital gain distributions, and non-dividend distributions. It does not include any dividends that you accrued through tax-sheltered retirement accounts. You will typically receive a 1099-INT if you received at least $10 in dividend income.  

1099-K: Payment Card and Third-Party Network Transactions 

Form 1099-K is meant to track payments made through third-party networks, such as PayPal or Venmo. For the 2023 tax year, you would receive a 1099-K if you earned at least $20,000 in 200 payments. 1099-Ks report gross income. Therefore, you should be sure to deduct any expenses you had to use third-party payment networks to receive payments.  

Other Common Types of 1099

1099-B, Proceeds from Broker and Barter Exchange Transactions

This form reports the sale of stock, bonds, and other securities through a broker, as well as barter exchange transactions. These transactions must be reported even if you had a loss or broke even. 

1099-G, Certain Government Payments

This reports payments you received from government agencies, including unemployment, tax refunds, taxable grants, and more.  

1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

This reports distributions from annuities, profit-sharing plans, retirement plans, IRAs, insurance contracts, or pensions. You should consult with a tax professional about whether you will owe tax on these distributions. 

1099-S, Proceeds from Real Estate Transactions

1099-S reports the sale or exchange of real estate. If the property was your primary residence for two of the five years before the sale, then up to $250,000 of the profit is exempt from taxes. This amount increases to $500,000 for married couples filing jointly.  

1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA

This form reports distributions made from a health savings account (HSA), Archer Medical Savings Account (Archer MSA), or a Medicare Advantage Medical Savings Account (MA MSA). Distributions can be taxable if they were used to pay for qualified medical expenses, if they were not rolled over in some cases, if excess contributions were made, and other scenarios. You should consult with a tax professional about whether you will owe tax on these distributions. 

Less Common Types of 1099 

1099-A, Acquisition or Abandonment of Secured Property

1099-A reports foreclosures on properties. You may be liable for capital gains tax and income tax for any unpaid foreclosed mortgage balances.  

1099-C, Cancellation of Debt

This form reports discharged, forgiven, or canceled debt. This can include your property foreclosure or forgiven credit card debt but typically excludes debt discharged in bankruptcy. You will need to claim the amount reported on your 1099-C as taxable income.  

1099-CAP, Changes in Corporate Control and Capital Structure

Form 1099-CAP reports the amount of cash, stock, or property received after a significant change in the company’s control or capital structure. 

1099-H, Health Coverage Tax Credit (HCTC) Advance Payments

This reports any advance payments of qualified health insurance payments you received. If you qualify for trade adjustment assistance (TAA), alternative TAA (ATAA), reemployment TAA (RTAA), or Pension Benefit Guaranty Corporation (PBGC), you might see this form. 

1099-LTC, Long Term Care and Accelerated Death Benefits

Form 1099-LTC reports payments made under a long-term care insurance contract. This includes accelerated death benefits, or benefits received before death because the policyholder has been deemed terminally ill by a doctor.  The amount shown on the 1099-LTC are generally tax-free but are required to be reported to the IRS. 

1099-LS, Reportable Life Insurance Sale

This form reports the amount paid to you from a life insurance sale. 

1099-OID, Original Issue Discount

1099-OID reports $10 or more of income received when bonds, notes, or certificates of deposit (CDs) are sold at a discount from their maturity value.  

1099-PATR, Taxable Distributions Received from Cooperatives

This reports at least $10 in patronage dividends and other distributions from a cooperative (co-op) in the prior year. 

1099-Q, Payments from Qualified Education Programs

1099-Q reports total withdrawals from qualified tuition programs (QTPs) like 529 plans or Coverdell educational savings accounts. This amount may be taxable, depending on how the funds were used. 

1099-QA, Distributions from ABLE Accounts

Form 1099-QA reports distributions from an Achieving a Better Life Experience (ABLE) Account for special needs individuals with a disability. These funds are not taxable if you used them to support a disabled individual. 

1099-SB, Seller’s Investment in Life Insurance Contract

This reports the sale of a life insurance policy like the 1099-LS. The difference is that the original issuer of the policy files a 1099-SB after they receive the 1099-LS. You should consult with a tax professional if you receive either of these forms. 

Tax Help for Those Who Receive 1099s 

The types of Form 1099 and the accompanying filing requirements can quickly become very complicated. You should always consult with a tax professional if you are unsure about your tax filing requirements. Remember, even if you do not receive a 1099 for income earned, it’s still your responsibility to include it in your taxable income. Not doing so can be a major red flag to the IRS and can result in an audit. Optima Tax Relief has over a decade of experience helping taxpayers with tough tax situations. 

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The 1099-K Reporting Threshold Is Delayed – Now What?

the 1099-k reporting threshold is delayed now what

In December 2022, the IRS announced that the new reporting thresholds for Form 1099-K have been delayed. The new thresholds are part of the American Rescue Plan of 2021, which will require Form 1099-K to be issued by well-known third-party settlement organizations (TPSOs) for any aggregate transactions of $600 or more. Here’s an overview of what this means for your taxes. 

Old 1099-K Thresholds vs. New 1099-K Thresholds 

Prior to the American Rescue Plan of 2021, taxpayers would only receive Form 1099-K if they earned an aggregate amount of $20,000 in over 200 transactions for goods and services. The plan changed the reporting requirements by drastically lowering it to any payments exceeding $600. Beginning January 1, 2023, TPSOs were supposed to be required to report third-party network transactions paid in 2022 that exceed $600 through an annual Form 1099-K. However, due to concerns about lack of guidance, the existing tax return backlog, and taxpayer confusion, the IRS will delay the requirement until 2024. In other words, the original $20,000 and 200 transaction threshold will remain in place through the rest of 2023.  

What This Means for Taxpayers 

It is a lot more common for taxpayers to also be freelancers or small business owners now, especially those who receive payments for goods and services via third-party payment networks. These can include PayPal, Venmo, Amazon, Square, Cash App, Stripe and many more. 1099-Ks are only generated for payments associated with goods and services, so taxpayers should not worry about receiving one for personal expenses paid via these apps. For example, you might collect rent from your roommates through Venmo, which you then send to your landlord. This is a personal expense, and you will not receive a 1099-K. However, if you are the landlord collecting rent through a third-party payment network, you should expect to receive a 1099-K.  

If you are a freelancer or small business owner who collects payments with a third-party payment app, you should use the delay to become more familiar with the new reporting rules that will take effect in 2024. You can also ensure that any transactions you receive through apps like Venmo or PayPal are correctly classified as a personal transaction and not a business transaction for goods and services. With the new rules taking effect, a single large transaction of $600 accidentally marked as a business transaction could trigger Form 1099-K to be generated. While this issue is correctable, it has to be done with the third-party payment network directly and the IRS will expect to see the reported income on your return until a correction is sent to them. This process could be time-consuming and cause further delays in processing your return. 

Tax Relief for Freelancers and Small Business Owners 

If the new rules go into effect and the IRS’s numbers do not match up with your own, you risk triggering an IRS audit, which can lead to unmanageable stress. You’ll want to avoid owing taxes now more than ever as IRS interest rates have recently increased, making your balance more expensive, especially with interest and penalties. Taxpayers should also note that this delay does not change any rules regarding taxable income. If you earn money through freelancing or your small business, you should report all income on your tax return, even if you did not receive a 1099-K. Our team of qualified and dedicated tax professionals can help if you have tax debt. If you need tax help, call Optima Tax Relief at 800-536-0734 for a free consultation.