A 1099 form is a tax form use to report various income types which are not considered traditional wages. Where a W-2 is a form for full-time employment, a 1099 form is for contractors, freelancers, and gig workers.

Since 2022 produced a staggering 40% of Americans with side hustles, understanding what a 1099 is and why you need one is important. 

Various Types of 1099 Forms

When people think of a 1099, they may just think of a singular, fully inclusive form. What many people do not realize, however, is there are 21 different 1099 forms. Each of these 21 different form types achieves a different goal or tracks a different income or expense.

Two of the more common are tracking income and tracking expenses and deductions.

Tracking Incomes

There are a few different 1099 forms that track incomes.

Form 1099-MISC is used to report income for those with side hustles making $600 or more in a year. Form 1099-INT is used to report interest from banks or other financial institutions (including interest from your HYSA). And Form 1099-DIV is used to report those dividend payments you receive from stocks or mutual funds.

Tracking Expenses and Deductions

In addition to reporting income, 1099 forms are also used to report several expenses and deductions. Two often used forms are form 1099-S and form 1099-K which report the sale of real estate and income received from payment processing services.

1099 Penalties

There are multiple penalties that can happen if your 1099 form is not filled out correctly, on time, or not at all.

For those tempted to completely ignore this form all together, think again. Failure to report income may force the IRS to enforce a 20% penalty on whatever you did not report. This failure may not be purposeful either; the IRS doesn’t care if you simply forgot.

There are also penalties for businesses if they miss the deadline to issue these forms to their employees. These penalties ranged from $50 to $280 for each form in 2022.

As more and more people pursue side hustles, 1099 forms have become more prevalent. Understanding what a 1099 is and why it is so important. Do you now feel more confident in your understanding of this important tax form?