Anticipated Arrival of IRS Forms 1099 and their Role in Determining Your Tax Liability
Anticipated Arrival of IRS Forms 1099 and their Role in Determining Your Tax Liability
Annual IRS Forms 1099 for 2025 are expected in January, detailing the income you earned throughout the previous year. Each Form 1099 corresponds to your Social Security number, allowing the IRS to easily issue a tax bill if you neglect to report any income. Omitting reported income may lead to an audit or a tax notice regarding the amount listed on your Form 1099.
It's worth noting that Forms 1099 aren't always accurate. As such, it's crucial to examine them meticulously. Obtaining a transcript from the IRS can help validate your information, and verifying the actual amount you were paid by the issuer is equally important. Businesses need to provide Forms 1099 to any non-corporate payee who receives $600 or more in various payment types during the year.
However, the $600 threshold is the base, and there are numerous exceptions. This could mean receiving a Form 1099 for all your bank accounts, even if your interest income is only $10. The essence of this process is IRS matching. If you receive a Form 1099, ignoring it is not an option because the IRS won't overlook it. There are many variations of the form as well.
These include Form 1099-NEC for independent contractors, 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, and so on. While there are many categories, Form 1099-MISC often generates the most queries.
What if a Form 1099 doesn't arrive? If you've received income, you must report it, even if you don't receive a Form 1099 for a specific payment. Also, don't assume you won't receive a Form 1099 just because it hasn't arrived by February or March. Companies might issue Forms 1099 late, sometimes as late as April or May. This can occur even after you've filed your tax return.
Lost mail or an outdated address could be reasons why you don't receive a Form 1099 reporting income to you. Even if the issuer has your old address, the information will be reported to the IRS (and your state tax authority) based on your Social Security Number. Ensure payers have your current address to receive a copy. Update your address directly with payers and request a forwarding order at the U.S. Post Office. Submitting an IRS change of address Form 8822 is also advisable. You'll want to see any forms the IRS receives.
If there's an error on a Form 1099, inform the payer immediately. If you disagree with the information on the form but can't convince the payer, indicate it on your tax return. There are several judgment calls companies need to make when issuing these forms. For instance, most lawsuit settlements are reported, and in many cases, the tax rules are unclear. If you settled a lawsuit and received taxable damages, report the payment as income.
However, if you believe the lawsuit recovery shouldn't be taxable, the last thing you want is a Form 1099. Certain damages are tax-free under Section 104 of the tax code, but only physical injuries and physical sickness qualify. Receiving a Form 1099 can be especially concerning for a legal settlement, as some lawsuit settlements, legal fees can't be deducted.
Failure to thoroughly review an incorrect Form 1099-NEC for independent contractors could result in IRS penalties. If you find discrepancies, promptly contact the payer to rectify the issue. Unreported income on Form 1099-MISC may trigger an IRS audit, potentially leading to charges of tax evasion. Neglecting to report income listed on any Form 1099, including Forms 1099-INT, 1099-DIV, 1099-G, 1099-R, 1099-B, or 1099-S, can result in tax notices from the IRS.