What is a 1099 and who gets one? Well, here of late, this term
is used more and more frequently as many employers are opting to
use contract labor versus hiring employees, who can turn out to
be quite expensive when you factor in the insurance, payroll
taxes, and other possible liability. This article will take a
look at the 1099, its purpose, who can receive one, and why.
The 1099 forms, if you are the recipient, should be furnished to
you by January 31, 2006, and must be furnished and filed by the
company furnishing the form no later than February 28, 2006. But
which 1099 form will you receive?
If you are classified as an independent contractor, or you
receive income that is classified as non-employee income, or
miscellaneous income you will receive what is known as a
1099-Misc.; these are the information returns most often
received for contract for-hire work, leased workers, or general
contractor payments for which there is not a direct sale as a
merchant to a consumer.
The other most often used 1099 form would come as a 1099-Int;
this is a 1099 received for interest income purposes; whether
the income be from a lending institution, or from the sale of a
seller financed mortgage, the recipient of any income from
interest will receive a 1099-Int. A close relative of the
1009-Int is the 1099-OID. This is an information return provided
when you receive an original issue discount, usually from
transactions related to mortgages served by the Federal Housing
Authority. Another 1099 can come as a 1099-B for barter exchange
transactions. What does this mean? It means that instead of
monetary payment, you received a bartered form of payment, an
exchange of something other than money, with value attached in
order to pay for a service.
Other less used 1099's are 1099-A, 1099-C, 1099-CAP, 1099-LTC,
1099-Q, 1099-R, and 1099-SA; the R, Q and SA are for retirement
and social security payments, and are received by many retired
individuals. The payments from IRAs, MSAs, Coverdell ESAs, and
HSAs are reported on these 1099s. The 1099-A is received is
there has been an acquisition of secured property, or an
abandonment of secured property.
1099-C is received if there is a cancellation of debt, as from a
bankruptcy proceeding, credit card default, or other failure of
a maker to make good on a debt that the lender or seller can use
as a tax deduction. The 1099-CAP is a 1099 used to report
significant changes in corporate control and capital structure.
What does this mean in laymen's terms? If you and several other
individuals are in business together, as an incorporated entity,
and 3 of you buyout another individual, you will be required to
furnish that individual with a 1099CAP so that the individual
reports any income or gain from the capital sale of stock.
A 1099 that we've not seen very much until recently, but one
that I'm sure we'll see much more of in the not too distant
future is the 1099-LTC. Long-term care and accelerated death
benefits are filed on this 1099; with a larger segment of our
population aging, this segment also known as the "baby boomers"
will make more use of long-term care insurance and payouts, and
many of them will receive these types of 1099s.
Although these are most often forms of taxable income to the
recipient, this is not always a steadfast rule. For many of the
older citizens, for individuals receiving the returns as part of
a discounted program through the government, and for certain
other situations, these are only information returns that do not
result in added tax liability. For the rest of us, however, a
1099 usually means we have increased tax liability.
About the author:
Tony Robinson is a Webmaster and International Author. Visit
http://www.tax-portal.com/ for his tax tips.
