Basics of the 1099 Form

1099 Form

What is this 1099 form people keep talking about? Simply put it’s similar to a W2 that a normal employee would receive, but the 1099 form is used for contractors. A contractor is a person hired to perform a task for the business. The business, generally speaking, does not manage this task. Contractors are not employees and are not subject to any tax at the time of payment. The reason for receiving the 1099 is to show what the business has paid you. Using the 1099 form you will need to file the amount on it as income on your taxes at the end of the year. At the time you file your taxes you will owe certain taxes such as income and social security tax on the money earned on the 1099 form.

The form itself isn’t to hard to figure out. Here’s an overview of the Boxes on the form:

The first box has the Payers Name, Address and Phone Number.

Box 1 is titled Rents. Rents Box is income reported from real estate.

Box 2 is for Royalties, if you have any amount in this box it would be income reported from Royalties.

Box 3 is titled Other income. This is where deceased employee, prizes, awards, taxable damages, Indian gaming profits, etc or for other taxable income.

Box 4 is titled Federal Tax Withholding and is used for backup withholding or Indian gaming profits.

Box 5 is reporting income for fishing boat proceeds.

Box 6 is for medical and health care payments and individuals will report this on schedule C or C EZ form 1040.

Box 7 is Nonemployee Compensation and is income received because you may not been given a W-2 for some of the income earned.

Box 8 is for Substitute payments in Lieu of dividends of interest. This is where payments in lieu of dividends or tax exempt interest received by your broker as a result of a loan of your securities will be reported.

Box 9 is if a “payer made direct sales of 5,000 or more of consumer products to a buyer for resale”. If you sold products and were paid more the 5,000, it will be reported here.

Box 10 Crop insurance proceeds. This amount will need to be reported on line 8 of schedule C or C-EZ.

Box 11 N/A

Box 12 N/A

Box 13 is excess golden parachute payments. If you received a golden parachute payment it is subject to a 20% excise tax.

Box 14 is gross proceeds paid to an attorney as part of legal fees.

Box 15a is for 409 deferrals for any nonqualified deferred compensation.

Box 15b is for deferrals for any nonqualified deferred compensation not associated with Box 15a and is to be reported on Form 1040.

Box 16 is any amount of state tax withheld.

Box 17 is state payers state tax payer number.

Box 18 State income.

Remember that 1099s are issued mainly to contractors who get paid by, but are not employed by a company. There are also certain other rules related to contractors that were not mentioned in this article.