1099 Form

1099 Form Definition

A 1099 form — also known as IRS Form 1099 — is an IRS tax form used in the United States to file an information return on various types of incomes other than wages, salaries, and tips. A 1099 form reports payments to independent contractors, rental property income, interest and dividends income, sales proceeds, and other forms of miscellaneous income.

If a business or organization pays any supplier/vendor more than $600 in a calendar year for services, rent, awards, gifts, or any other business-related activity, they must file a 1099 form for the total amount spent with the supplier/vendor. Businesses must also file a 1099 form is more than $10 is paid in royalties in a calendar year. Four copies of the 1099 form are made and sent to the payer, the payee, the IRS, and the state’s tax department (if needed). Typically, the accounts payable department of the business is responsible for 1) collecting a W-9 from every supplier or vendor in their procurement process and 2) filing and sending the 1099 forms every tax year before January 31.

The most common type of 1099 form a business files is the 1099-MISC form; it is one of many variants of the 1099 form and is used to report miscellaneous income. Form 1099-MISC reports amounts paid by a business to an independent contractor (or in accounts payables’ view, the supplier/vendor). The IRS refers to independent contractors as nonemployees of the business, non W-2 employees, or unincorporated businesses such as an LLC.

Other types of 1099 form include:

  • 1099-A – Income or benefit received from the cancellation of your mortgage or short sale of a home
  • 1099-B – Income from the sale of securities
  • 1099-C – Income or benefit received from the cancellation or settlement for less than owed of a credit card debt
  • 1099-CAP – Income, cash, stock or other property gained as a result of shares in a corporate that was acquired or underwent change in capital structure
  • 1099-DIV – Reports dividends received
  • 1099-G – Income or money received from the state, local, or federal government including a tax refund, credit, or offset; common for those who have received unemployment benefits in the year
  • 1099-INT – Reports more than $10 earned in interest from a bank, brokerage, other other financial institution
  • 1099-LTC – Income or benefits received from long-termbenefits such as death benefits or a life insurance policy
  • 1099-MISC – Any income that doesn’t fit into the other categories, including prizes and awards
  • 1099-OID – Reports bonds, notes, or other financial instruments bought at a discount to the face value or redemption value at maturity
  • 1099-PATR – For those who belong to a co-op and received at least $10 in patronage dividends
  • 1099-Q – Reports money in your child’s college fund (529 account); earnings in a 529 plan are not subject to tax when used for qualified education expenses
  • 1099-R – Reports distributions from a pension, retirement plan, profit-sharing, IRA, or annuity
  • 1099-S – Reports the proceeds from closing a sale or exchange or real estate
  • 1099-SA – Reports distributions from a health savingsaccount

Best Practices

1099 forms — specifically 1099-MISC forms — are an important part of the procure to pay cycle and accounts payable process. While it may be a nuisance to report your transactions with your suppliers/vendors, it is an important part of accounting for all business-related expenses and monitoring for potential fraudulent activity.

Accounts payable automation streamlines 1099 form reporting by keeping a digital record of all vendors and payments made. In addition, to make the 1099 form reporting process simpler, there’s a few best practices and concepts to keep in mind:

  • The 1099 form process is a year-round process that requires maintenance and due diligence; don’t wait until it’s time to run the reports to gather the needed information
  • Ensure that every new supplier/vendor added to the system has a W-9 or Tax ID number (TIN) on file; some companies do not release any payment to any vendor without this document on file
  • File electronically (required for businesses that file more than 250 1099 forms); e-statements save time, resources, and paper
  • Send correspondence to your suppliers/vendors explaining why they are receiving the 1099 form; most contractors are already aware but this could help alleviate confusion and questions for those who don’t
  • Avoid IRS penalties for filing late 1099 forms; keep an ngoing and current accounting of all payments to suppliers/vendors

Datapoints

the steps for US 1099 reporting from setup to reports

Source: General Payables Options (Oracle)

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