One of the most common questions from taxpayers is, “What’s the difference between a 1040 Form and a 1099 Form?” While both forms play an important role in determining how much you owe in taxes, their purpose and usage are very different. In this blog, we will break down what makes each form unique.
The new year brings a lot of excitement and anticipation. But it also brings something quite unappealing – taxes! Filing taxes can be complicated and overwhelming, especially when you’re faced with deciding whether to use a 1040 Form or a 1099 Form. The forms might look similar, but they each serve a separate purpose.
So to help you get out of this tax pickle, In this blog, we’ll break down the difference between a 1040 and a 1099 form, so you can make the right decision when filing your taxes.
So let’s get started!
What is a 1040 Form?
Form 1040 is an IRS tax form used to report an individual’s income. This is used by those with standard employment income and does not need to declare any other type of income. The form is divided into wages, salaries, tips, dividends, capital gains/losses, and more. It also includes boxes for deductions, credits, and exemptions. The main purpose of this form is to report all taxable income to the IRS.
What is a 1099 Form?
Form 1099 is an IRS tax form used to report miscellaneous income from freelancing or self-employment income sources. 1099 must be issued when the total payment exceeds $600 during the year. This would include fees earned from freelance work, royalties paid for penned works, or commissions made from direct sales businesses. This form also has various categories depending on the type of income that was earned.
1040 Form vs 1099 Form: What Are The Differences
One of the most confusing aspects of filing taxes is figuring out the difference between a 1040 Form and a 1099 Form. And it’s not surprising since both forms are used for reporting income. But there are some key differences between them. And to help you out here, we’ll explain the differences between the two.
- The Purpose Of The Form
A 1040 Form is the form that is used for filing an individual’s income tax return. This form collects personal and financial information about an individual, including wages or self-employment income, Social Security payments, and other investment income.
On the other hand, a 1099 Form documents the amount of non-employee compensation that an individual earned during the year. It’s most commonly used when individuals receive money from freelance work, rent, or royalty payments.
- What Is Reported On The Form
The 1040 Form reports all income received by taxpayers over the year. This includes wages, salaries, tips, interest and dividends, capital gains, and losses from investments.
The 1099 Form, on the other hand, typically only reports freelance income or other non-employee compensation. If a taxpayer receives any payments from independent contractors, rents, or royalties, they must file a 1099 Form.
- Who Completes These Forms
The 1040 Form is completed by the taxpayer and filed with the IRS.
The 1099 Form, however, is completed by the employer or payer and must be sent to both the taxpayer and the IRS. It’s important for employers to send out 1099 Forms promptly so taxpayers can accurately file their taxes.
Let’s take a scenario; Suppose an individual is employed at a company; the employee will file the 1040 form and send it to the IRS. However, if a freelancer has been contracted to do some work for the company, then it is the company’s responsibility to fill out the 1099 Form and send it to both the freelancer and the IRS.
- Type Of Forms
There is only one type of 1040 form that all taxpayers must use to file their taxes. However, there are several types of 1099 forms that employers need to be aware of:
• 1099-MISC – This form is used for any payments made to independent contractors or non-employees who have earned more than $600 in a year from services rendered.
• 1099-INT – Used for interest earned on financial products such as savings accounts, certificates of deposits, and money market accounts.
• 1099-DIV – Represented dividends paid out by investments such as stocks and mutual funds.
• 1099-K– This form reports the proceeds from payment card transactions such as debit and credit cards or any third-party payment entity.
• 1099-R – Used for any distributions made from retirement accounts, pensions, or annuities.
And various other forms such as 1099-B, 1099-G, 1099-LTC, and more.
Deadline For Form 1040 and 1099: When It Is Due?
The due date for 1099 forms depends on the type of form. Your 1040 filing deadline is April 15, 2021. But generally, the deadline for 1099 forms is January 31 of each year.
If you are late filing either form with the IRS, you may face penalties, such as fines and interest charges. The sooner you file these taxes, the better off you will be!
Tax1099: One Stop For All Your 1099 Filing Needs
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