What Is A 1099 Form? Everything You Need To Know

Do you earn extra income from a person or organization other than your primary employer? It could be periodic checks you receive from a side hustle such as freelancing, or even just interest you earn on a savings account. If so, each of these institutions will likely send you a tax form called a 1099 that details how much they paid you over the course of a calendar year.

So what is a 1099 form, how does it affect your tax return and what action must you take when you receive one?

What Is A 1099 Tax Form?

A 1099 form, also called an information return, is a document sent to you by an entity that paid you certain types of income throughout the tax year. Getting a 1099 doesn't mean you necessarily owe taxes on that income, but you will have to report it to the IRS on your tax return.

If you work for a full-time employer and they deduct your federal, state and social security taxes from every paycheck, you will receive and end-of-year W2 form that lists all of your earnings and withholdings for taxes. However, the income reported on a 1099 from any extra employment or miscellaneous earnings has not been taxed. Depending on how this extra income affects your adjusted gross income for the year, you may have to pay additional taxes—in fact, for most people this is almost a certainty.

The income reported on a 1099 can come from numerous sources, such as interest on a bank account, prize money, retirement benefits, sale of securities and more. These are reported on specific subsets of 1099 forms (see table Types of 1099 Forms below), but the most common are the 1099-MISC and 1099-NEC.

What Is A 1099 Form Used For?

A 1099 form is used to report income from sources other than a full-time employer. Its use is similar to a W2, but it reports different types of income.

Issuers of 1099 forms must send one copy to the IRS and another to the income recipient. It helps U.S. taxpayers report their income so that the IRS can collect the appropriate taxes. It’s important for you, the recipient, to know that the government is now aware of this untaxed income and will expect you, the taxpayer, to report this income on your tax return.

Who Receives A 1099 Tax Form?

A 1099 form is required to report certain non-employee compensations for services performed. It includes everything from earnings for independent contractors, such as freelancers, to rents, interest, capital gains, retirement benefits and awards.

Let’s take a look at all the types of income that can generate a 1099 form and how they are classified.

Types of 1099 Forms

While the two most common 1099s are the MISC and NEC classifications, there are 21 types of 1099s. This table defines each.

1099 Tax Form FAQs

Here are answers to some of the most common questions about 1099s that employers and taxpayers should know.

When do 1099s need to be issued?

As tax returns for the previous year must be filed at the end of the first quarter of the following year (for example, the deadline for filing tax returns for 2023 is April 18, 2024), employers are required to send out 1099s earlier in the year to allow time for tax return preparation.

The majority of 1099 forms need to be issued to recipients by February 1 and filed with the IRS by March 1, or March 31 if being filed electronically

Do I need to pay taxes on my 1099?

Yes, if you earn more than $400 in independent contractor work, you will likely pay a tax. When you work as a standard employee, your employer automatically withholds your income and FICA taxes (Social Security and Medicare) and pays them to the IRS. Self-employed individuals, on the other hand, have to calculate and pay these taxes themselves. 

Additionally, as a 1099 earner, you’ll have to pay both halves of the FICA taxes. Normally, FICA is split half-and-half between employers and employees. But since independent contractors don’t have separate employers, they’re on the hook for the full amount. The combined FICA tax rate is currently 15.3%.

When should I expect to receive my 1099?

The deadline for an employer to send you a 1099 is typically January 31. They will also send a copy to the IRS directly, though this might be a little later. Even if they don’t send you a 1099, you are required to report the income. If you dispute the amount of income listed on the 1099 (for example, they report paying you more than you earned), you should contact them immediately and ask for clarification because that is the amount for which you’ll be responsible.

What’s the difference between a 1099 and a W2?

While you may receive both a W2 and 1099 at the beginning of tax season, and both report your income for the previous year, they are different. The W2 is issued to you as a member of your company’s payroll, while a 1099 reports any non-payroll income from other companies (such as side hustle work) or other sources (like rent or interest on a bank account) that paid you in the tax year.

The Bottom Line: Only Some Taxpayers Need To Fill Out A 1099

If you’re on a company payroll, your federal, state and local taxes are deducted automatically from your paycheck and summarized in a W2 tax form you receive at the end of the year. However, if you have other sources of non-payroll income, such as freelance work, that income is reported to you and the IRS and you will likely have to pay extra income tax on it. So keep an eye out for any 1099s — you should receive them by January 31.

To help you track and manage all your sources of income throughout the year and make preparing for tax season a snap, the Rocket Money^SM app is an essential tool you soon won’t be able to live without.