Taxpayers may not like receiving IRS Form 1099, and in some cases, are happy to be missing an IRS Form 1099. Businesses may not like sending them out. Perhaps no one likes 1099s except the IRS. The agency loves them because they easily allow matching data against tax returns.
1. It's better to give than receive. Generally, businesses must issue the forms to any payee (other than a corporation) who receives $600 or more during the year. And that's just the basic threshold rule; there are many, many exceptions. That's why you probably get a Form 1099 for every bank account you have, even if you earned only $10 of interest income.
2. There are many varieties. There's a 1099-INT for interest; 1099-DIV for dividends; 1099-G for state and local tax refunds and unemployment benefits; 1099-R for pensions and payouts from your individual retirement accounts; 1099-B for broker transactions and barter exchanges; 1099-S for real estate transactions, etc. In fact, there's a dizzying array. There are many categories, but the Form 1099-MISC (for miscellaneous) seems to prompt the most questions and covers the biggest territory.
3. Timing is everything. Businesses must send out Forms 1099 by Jan. 31 for the prior calendar year. However, don't assume you're off the hook for reporting income if you don't receive a Form 1099 by February or even March. There are penalties on companies that issue 1099s late, but some come as late as April or May when you may have already filed your return.
4. Beware changed addresses. The information will be reported to the IRS based on your Social Security number regardless of whether you receive the form. Update your address directly with payers, as well as putting a forwarding order in with the U.S. Post Office. You'll want to see any forms the IRS sees.
5. The IRS gets them, too. Any Form 1099 sent to you goes to the IRS too. The deadline is Jan. 31 for mailing 1099s to taxpayers, but the payer has until the end of February to send all its 1099s to the IRS.
6. Report errors immediately. The time delay means you may have a chance to correct errors. So don't just put arriving 1099s in a pile; open them immediately. If there's an error tell the payer immediately. There may be time for the payer to correct it before sending it to the IRS. If the payer has already dispatched the incorrect form to the IRS, ask the payer to send in a corrected form.
7. Report every 1099. The key to Forms 1099 is IRS's matching. Every Form 1099 includes the payer's employer identification number and the payee's Social Security number. The IRS matches Forms 1099 with the payee's tax return. If you disagree with the information on the form but can't convince the payer you're right, explain it on your tax return. If you receive a Form 1099, you can't just ignore it, because the IRS won't.
8. IRS Notices. If you forget to report a 1099, the IRS will send you a computer-generated letter billing you for the taxes. If it's correct, just pay it.
9. Consider state taxes, too. Most states have an income tax, and they will receive the same information as the IRS. If you missed a 1099 on your federal return, your state will probably bill you too.
10. Don't ask. Keeping payers advised of your current address is a good idea, as is reporting errors to payers. However, if you don't receive a Form 1099 you expect, consider not asking for it. In some cases, if you are missing an IRS Form 1099, you may want to keep quiet. If you are expecting a Form 1099, you know about the income, so just report that amount on your tax return. IRS computers have no problem with that. If you call or write the payer and raise the issue, you may end up with two of them, one issued in the ordinary course (even if it never got to you), and one issued because you called.
Forms 1099 are a vital part of IRS matching. Take these forms seriously. The IRS sure does.
For alerts to future tax articles, email at Wood@WoodLLP.com. This discussion is not legal advice.
