Form 1099 must go to any person who provides services to another and earns $600 or more for those services. The provider who does business this way is an independent contractor. The issuer is obligated to postmark these 1099s by January 31. There are procedures that apply to the issuer and others apply to the recipient.

The Issuer

The issuer must determine that the person who will receive the form 1099 is, in fact, the person who should receive it. For the employer, this means that the difference between an employee and an independent contractor/freelancer must be clear-cut. An employee would receive a W-2. The 1099 reports total gross payments made to the independent contractor. Independent Contractors have their own office somewhere else. This individual has more than one client and provides one or more services to each client. As a project progresses, billing for service units and reimbursable supplies will come from this office to each client/issuer for the services rendered. Employment is not the only reason that a 1099 would issue. The issuer could be a bank reporting earned interest, pension or retirement payouts made during the past year, brokerage firms reporting interest/dividends/capital gains on investments or reportable payments from government agencies. Creditors who may have "forgiven" a debt might issue the 1099-C to add the forgiven amount to your income. Once the issuer sends a 1099, this same information goes to the Internal Revenue Service in the form of a summarized report using form 1096. The deadline for filing the 1096 is usually February 28.

The Recipient

The recipient receives a mailing marked "Tax Document Enclosed" and is responsible for reporting the information from the enclosed 1099. The 1099 reports all earned and unearned income. Independent Contractors/Freelancers/Retirees or Investors might receive 1099s from more than one source. An Independent Contractor/Freelancer is self-employed and must declare net income subject to taxes. Report that earned income using a Schedule C. Schedule B is the place to report the unearned income from 1099-INT and 1099-DIV. Plug the 1099-R figures into Schedule D. The 1099 recipient is responsible for any taxes due as the result of 1099 income unless the issuer withheld taxes. You can request tax withholding from unemployment payments, brokerage firms and Social Security or pension income. When your tax returns are complete, the filer keeps all 1099 hard copies along with the hard copy of the tax return for at least 3 years, but ideally 5 years. The only thing left to do is to wait for the tax refund anticipated by the filer.

Source:

Entrepreneur.com: Preparing Your IRS Forms 1099 and W-2

IRS.gov: The 1099 Series