There are different types of IRS Form 1099. To be very precise, there are a total of 16 and all these form 1099 varieties serve one general purpose- to provide information to the Internal Revenue Service about earnings from non-employment-related mediums. It is mandatory for the payers of these income types to send a copy of the form 1099 to IRS and a copy to the recipient who makes the payments. The recipient is actually the taxpayer. The payers must also send one copy of the form to the state tax authority of the taxpayer and even keep a copy for their own reference.
A Targeted Tax Device
Very similar to the other types of tax forms, the IRS Form 1099 encourages people towards reporting all their earnings enabling the IRS to collect full taxes that it owes to the taxpayers. According to the IRS, form 1099 enables the IRS to improve collections and increase intended compliance. This is the main reason why form 1099 is called information return technically. Form 1099 serves as an effective device that helps the IRS in collecting taxes. IRS compares the reported income of the taxpayers on form 1040 alongside the information reported on 1099s and various other forms like the W-2. The W-2 form is used by employers for reporting the salaries and the wages that they pay to their employees. The computer checks carried out by the IRS enable the organization to collect taxes on un-reported income.
Factors to Consider when Dealing with Form 1099
There are some important factors that you need to consider when dealing with IRS Form 1099 and they are as follows:
Errors should be Reported Immediately
Do not just keep receiving the 1099s. You must check the forms for errors and if you find any errors, report them immediately. The payer must instantly be informed of any error in the form because if there is time, the payer might be able to correct the error prior to sending the form to the IRS. In case, the incorrect form has already been dispatched by the payer, you must request the payer to send a corrected form.
Every 1099 Must be Reported
IRS’s matching is the key to all 1099s. The Social Security Number of the payee and the Employer Identification Number of the payer is included in each and every form 1099. The IRS compares and even matches the 1099s with the tax return of the payee. Thus, you need to keep in mind that you cannot ignore form 1099 if you receive it because the IRS will not do so.
In case, reporting form 1099, goes completely out of your mind, the IRS will probably send a computer-generated letter to your address billing you for taxes. In circumstances where you find the letter to be absolutely correct, you need to pay your tax returns.