The A-Z of How to Fill Out a 1099 Form

by aotax | Feb 16, 2022 | Form RRB 1099

Small businesses have enjoyed consistent growth in the US in the last few years. There were 32.5 million such enterprises in 2021, up 2.5% over 2020. And a 9.8% increase in the previous four years.

These small enterprises are job providers for freelancers and independent contractors. According to statistics, approximately 70% of such businesses hire freelancers.

The IRS (Internal Revenue Services) requires these entrepreneurs and freelancers to fill out the 1099 form. And refusing to comply with this has repercussions. So, if you are an Indian freelancer or a small business owner in the US, we will tell you how to fill out a 1099 form.

What is a 1099 Form?

A 1099 form is used to report a freelancer or independent contractor’s non-employment income of $600 or more. It includes revenue from stock dividends, interest on deposits, property sales, cash prizes, royalties, and other sources.

The IRS receives this form straight from the payer. Therefore, the taxpayer doesn’t need to file it in their income tax return (ITR). They are, nevertheless, required to inform the IRS about these transactions.

Who is included under the 1099 category?

With nearly 59 million freelancers, the USA is regarded as the largest freelancer market in the world. And out of this figure, 36 million do it on a full-time basis.

Every year freelancers contribute $1trillion to the US economy. As a result, their earnings must be reported on the 1099 form. In addition, businesses that hire their services must also file the 1099 form with the IRS.

They do not need to fill out this form if they hired freelancers or contract workers through a third party like Fiverr, Upwork, or Freelancer.com.

Types of 1099 form

A non-salary income has varied forms – like consulting fees, dividends, interest, retirement payouts, tax refunds, and so on. And the 1099 form has a different category for each of these. We will show you how to fill out the 1099 form for payments made or received:

1) 1099 NEC – A company that paid $600 or more to an independent contractor or freelancer for work in the last fiscal year must fill out this form. Similarly, if they paid $600 or more to an attorney, they are subject to 1099 NEC.

2) 1099-DIV – If a person receives dividend income from their stocks, they will receive a 1099 DIV. The company will send them this form.

3) 1099 – INT – Individuals who earned $10 or more in interest in the preceding year will receive this form from banks and brokerage firms.

4) 1099 G – People who receive federal, state, or local government tax returns or unemployment benefits also receive 1099-G.

5) 1099-R – This form is also issued to those receiving money through a retirement or pension plan or individual retirement account (IRA). In addition, certain annuities and insurance contracts also fall in this category, though they may or may not be taxable.

6) 1099-S – This form is used to report the sale of land, which might be residential, commercial, or industrial.

7) 1099 MISC – This category includes money received as cash, reward, award, royalties that were not earned through employment.

How to Fill Out a 1099 Form?

The 1099 form has two copies – A & B. When a business owner hires a freelancer, they must fill in copy A and send it to the IRS. And send copy B to the freelancer. Both the copies should be sent to the IRS before January 31.

Employers can submit physically or electronically. If they do it physically, they must also submit the 1096 form. They have to do it on the IRS Filing a Return Electronically (FIRE) system for online submission.

Moreover, unless the freelancer is a non-resident or resident alien, the form should include the following information – legal name, residence, the total amount paid in the previous year, and social security number.

The contractor should also consent the business owner to receive 1099 by email or paper copy.

Deadline

The IRS requires the taxpayers to report their 1099 income by January 31 of each year. The businesses must file by the end of February. Whether a taxpayer has received their 1099 or not, they must report such income to the IRS.

Notify about your changed address

If you are a freelancer and have changed your address, ensure that you receive everything the IRS sends. Hence, inform your payers (employer) about the address change.

Correction of errors

If freelancers receive 1099 from their payers with any errors or discrepancies, they should contact the latter to correct it before January 31. If the payer fails to rectify the errors, the freelancer should inform the IRS about it in the tax return form.

Penalties

If a freelancer/independent contractor fails to file/report their 1099 on time, they will be subject to the following penalties:

1) A delay of 30 days after the due date costs $50.

2) A delay of 30 days or more till August 1 costs $100.

3) If submitted on or after August 1, the fees will be $260.

4) If you fail to file it, you must pay a minimum of $530.

Being a law-abiding US citizen and the taxpayer is good for you. And if you follow the above instructions, you can easily fill out or report your 1099 forms. It will also keep you out of trouble with the IRS.

If you have trouble filling your taxes, contact AOTAX to help you do so. With us, filing your tax returns will be a breeze, thanks to their staff of expert tax planners and skilled advisors. For any more information, visit us on Home – AOTAX.

Do I need to file my taxes to be eligible to receive a Stimulus check?

by Mounica Kota | Apr 16, 2020 | CARES, COVID - 19, federal government, Form RRB 1099, IRS, Stimulus payment

Do I need to file my taxes to be

eligible to receive a Stimulus check?

In the US, the Federal Government had passed the CARES (Coronavirus Aid Relief and Economic Security) Act to bring some relief to the Americans who are struggling due to the outbreak of COVID-19. Under the CARES Act, the IRS announced that a Stimulus check would be issued to the individuals in the US for financial relief up to some extent.

According to the IRS, most of the Americans would be receiving their Stimulus checks automatically based upon the 2019 tax returns. The information of the 2018 tax returns would be considered if the 2019 tax returns have not been filed by an individual. The Stimulus payments would be done by the Direct Deposit method as it would help in sending the money faster.

Who is eligible to obtain the Stimulus payment?

The majority of the American population would qualify to receive the Stimulus payment. The size of the Stimulus payment would depend on the Adjusted Gross Income (AGI) of the individuals.

For an individual who is filing his tax returns as a single filer and is having AGI below $75,000, the Stimulus payment received would be $1200. He would also receive an additional payment of $500 if he would claim a dependent below the age of 17 years. If the AGI of the single filer is above $75,000, then the Stimulus payment would reduce by $5 for every $100 increase in AGI above $75,000. Also, if the AGI of the individual is above $99,000 and no dependents are being claimed then the individual would not receive any Stimulus payment.

For married couples filing their tax returns jointly and are having an AGI below $150,000, the Stimulus payment received would be $2400. They would also be eligible to receive an additional payment of $500 by claiming a dependent below the age of 17 years. If the AGI of the couple is above $150,000, then the Stimulus payment would reduce by $5 for every $100 increase in AGI above $150,000. Also, if the AGI of the individual is above $198,000 and no dependents are being claimed then there would be no Stimulus payment received.

Need to file tax returns to obtain Stimulus payment

Let us talk about those instances where the filing of tax return is necessary to obtain the Stimulus payment.

Self-employed individuals who have a net income of $400 or more must file their tax return as they would have to pay self-employment taxes on the income of $400 or more.
Those taxpayers whose income is more than the income filing threshold as determined by the IRS need to file their tax returns for obtaining the Stimulus payment. This income filing threshold determined by IRS is $12,200 for single filers, $24,400 for married couples who are filing their tax returns jointly and $18,350 for filers filing returns as ‘Head of Household’.
Those dependents who have an unearned income of more than $1,100 and earned income more than $12,200 must file their tax returns for receiving the Stimulus payment.
If an individual owes taxes on an IRA or Health Savings Account he will have to file his tax returns for obtaining the Stimulus checks.
If an advance payment of the health coverage tax credit has been received by an individual, then he must file his tax returns.

Situations which rule out the need to file tax returns for receiving Stimulus payment

a.Social security recipients and the Railroad retirees who have not filed their tax returns for the year 2019 or 2018 do not need to perform any additional paperwork like filing a tax return for obtaining the Stimulus payment. The IRS would use the information from Form SSA-1099 and Form RRB-1099 respectively to obtain the information needed to send the Stimulus payment.

b.Those Americans who belong to the lower-income group or who have income below the tax filing threshold of IRS and have not filed tax returns for 2019 or 2018 must use the new web tool of the IRS. By using this tool, individuals can enter their basic information like Name, Address, SSN, Dependents, etc. This information would help in calculating and sending the Stimulus payment.

c.Recipients of Supplemental Security Income (SSI) will obtain their Stimulus payments automatically without the need for filing the tax returns. However, if they have qualifying dependents below the age of 17 years must use the web tool of IRS to claim the additional $500 payment. This is also applicable for the Railroad Retirees and Social Security beneficiaries.

Hence, taxpayers don’t need to file tax returns for obtaining the Stimulus checks. It mainly depends upon the circumstances which determine the need to file the returns.