Just because you do not receive W-2 income does not mean you don't have to pay taxes. Just about any income you receive including interest, dividends, rental income and payments for contracting or freelancing, to name a few, will be subject to income tax. This income is usually reported to you and to the the Internal Revenue Service using one of the many forms 1099.
Types of 1099 Forms
When individuals refer to "1099 income" they often mean income reported on the 1099-MISC. The 1099-MISC form documents non-employee income that is not from wages or salaries, typically issued to independent contractors or consultants.
The 1099-INT form reports interest received or issued, typically from financial institutions such as banks. The interest revenue does not have to be issued as cash to be taxable; it only has to be credited to the account.
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Dividends, real estate sales, distributions from savings or retirement accounts and investments can trigger a 1099 to be issued. An extension for the document code specifies the type of compensation issued, such as 1099-G for government payments, 1099-DIV for dividends or 1099-SA for qualified medical or education savings accounts.
Companies and financial institutions typically issue 1099 forms. However, independent contractors and consultants can issue 1099 forms for sub-contractors or business-related contractors or service providers who received $600 or more in that tax year. The 1099 forms include the organization's taxpayer ID and the recipient's Social Security number for reporting purposes.
Anyone who receives non-employee income must complete a W-9. The form requires you to provide your Social Security number, or Tax ID Number (TIN), for a business. Companies send 1099 forms to individuals during January and February to report payments for the previous tax year. Similar to W-2s, the payor will also send a copy to the IRS. While exact deadlines for submitting the 1099 information forms to recipients and to the IRS vary each year, individuals should contact organizations if they haven't received an expected 1099 form by early March because this should be filed with their income tax report.
Revenue or income doesn't need to be directly sent as cash to an individual in order to be reported. Informational forms such as 1099s document year-to-date payments from a company. For example, tax refunds from the IRS or state may be applied to pay next year's taxes. Although the individual didn't receive a check, the money was issued to the recipient's tax account and documented on a 1099-G. Financial institutions report total distributions using 1099 information forms for interest accumulated each month or periodic payments from a retirement or qualified savings account. Creditors can also issue a 1099-C for a canceled or forgiven debt that is considered a form of compensation because it no longer needs to be repaid.