We've all gotten 1099s. IRS Form 1099 is any of a variety of reporting forms used when one entity pays another entity under certain circumstances. A copy goes from the payer to the payee, and the payer also sends a copy to the IRS.
Some 1099s you've probably received: if you have an interest-bearing savings or checking account at a bank and you've earned more than $10 in interest in a year, you got a 1099-INT from the bank. This is partly why the bank requires your social security number to open the account.
If you've got a (regular, taxable) brokerage account (not an IRA account) at Fidelity or Schwab or any other broker, you got a 1099 reporting dividends and interest you earned. Sometimes they combine several 1099 forms into one whole collection of year-end documents for you. The combined document may have separate sections including a 1099-DIV reporting dividends, a 1099-INT reporting interest earned, and possibly a 1099-B reporting "proceeds from broker and barter exchange transactions" (that's where the proceeds from sale of a stock position would be reported). There may have been a 1099-OID reporting original issue discounts on bonds you bought.
If you have mutual funds (again, in a taxable account, not an IRA or 401(k)), you got a 1099. Even if you didn't actually receive any cash but instead had your distributions reinvested, as most folks do, you got a 1099. (Remember to track those reinvestments so you know your cost basis correctly when you do eventually sell!)
If you received government payments - unemployment benefits for example - you might have gotten a 1099-G. And if you got a pension or other payout from a retirement plan, IRA or annuity, you'll have gotten a 1099-R.
There's a whole alphabet soup of 1099 forms out there. Watch out for them, track them, file them, and make sure you have them all handy when you are getting ready to do your taxes. The IRS already has the information, and their computers automatically track and match them to things what you report when you do your taxes.
So, it's August and none of this is a big surprise to anyone, so why address 1099s now? There's something about 1099s in the news lately which may be flying under most folks radar, but if you talk to your accountant, he or she will likely have some steam coming from his or her ears from thinking about 1099s and the recently passed "ObamaCare" health care law. Here's why:
Another kind of 1099 not mentioned above is the kind that businesses have to file when they buy goods or services from other businesses. Currently, only payments totaling over $600/year made to unincorporated sole-proprietor businesses must be reported via 1099s to the business and to the IRS. Common places where these show up at the individual level is when an individual does contract work for a business. Such folks are even sometimes referred to as "1099 employees" although technically, they aren't employees at all but rather independent contractors. (As opposed to real employees who get their wages reported on those W-2 forms we're all familiar with.)
The 2010 Health Care, in an attempt to help pay for its costs, included a provision which is, according to the Wall Street Journal, supposed to raise $17 billion in additional government revenues over the next decade. That provision: all businesses are going to be required, starting with 2012, to report purchases from any vendor of goods or services totaling $600 or more in a year to the IRS and provide a 1099 to both the IRS and the vendor.
This will be a paperwork nightmare for small businesses, sole proprietors, pretty much everybody. Do you have any self-employment income? Do you spend $600 at Staples over the course of the year? You have to give Staples a 1099 and send a copy to the government. Did you have any business travel for your small business? Send a 1099 to the airline and the IRS. And, oh, by the way, you'll need to get Staples and the airline's federal taxpayer IDs to do it.
The expected burden on small businesses (on all businesses, but the marginal impact will be much harder on small businesses) is enormous. It's so big that some folks who'd likely actually make money by being paid to help businesses comply with it are complaining. The American Institute of Certified Public Accountants (AICPA) even told members of Congress to repeal this reporting requirement: http://www.webcpa.com/news/AICPA-Asks-Congress-Repeal-New-1099-Requirements-55056-1.html
Moreover, both Democrats and Republicans are clamoring for the repeal of this very provision - which they all so recently enacted. There's all the normal back-and-forth over it going on, but just this past Friday, a bill was introduced by Democrats to repeal this requirement. Republicans, however, blocked the bill, claiming opposition to the tax increases necessary to pay for the lost projected revenues. (Another estimate, by the way, suggested over $19 billion over 10 years).
So where are we today? In limbo. Republicans want to see this 1099 provision repealed. Democrats want to see it repealed. Both Republicans and Democrats claim to want to help small businesses, the famed "engine of growth" in our economy. And, unfortunately, both Democrats and Republicans are opposing each others plans to repeal it so that they can tailor the repeal to their own liking and take credit for the repeal. In the meantime, the clock has started. Given Congress recent track record at fixing things that they put in place with the expectation of revisiting them before they take effect, we could be in for some trouble here. (See the articles here about the Estate tax for a great example of Congress failure to deal with messes they've made which they'd expected to fix before they caused problems.)
If you don't own a business or have self-employment income, you probably won't be affected by this. But if you do, keep your eyes open. Mention to your accountant next time you talk to him or her that you've heard about this 1099 situation (and look for the steam to come out of his or her ears.) If you're highly motivated, consider letting your Congressperson know what you think about this new paperwork requirement.
And in the meantime, plan on learning how to issue 1099s.
Some links:
http://www.accountingweb.com/topic/tax/attempt-repeal-1099-requirement-fails
http://www.webcpa.com/news/Small-Business-Tax-Relief-Act-Fails-Pass-House-55105-1.html
About 1099s in general - well worth reading even if you are not going to be affected by the new reporting requirements: http://www.forbes.com/2010/01/27/irs-1099-computer-matching-audits-personal-finance-robert-wood.html