Tax forms you should know, part 1

Each year, third parties file millions of forms with the IRS reporting income and other activity. You can easily trigger an audit by omitting reported income from your tax return.

What forms does IRS get from third parties? What do they mean? And how does IRS compare those forms to what you include in your tax return?

The following sections describe some of the most common income-reporting tax forms. I also explain where IRS expects to see the amounts from these forms on your return.

W-2, Wage and Tax Statement

If you worked for someone else as an employee, or you own and operate a corporation (C or S), you should receive a Form W-2. The W-2 indicates your gross wages paid, the employee portions of payroll taxes paid, and income tax withholding.

These amounts are totaled and reported on your Form 1040, U.S. Individual Income Tax Return, on Line 1, Wages, salaries, tips, etc. IRS receives a copy of every filed W-2 and attempts to match its records with what is reported on Form 1040, Line 1.

1099-INT, Interest Income

If you held cash in an interest-paying bank or brokerage account, you may receive a Form 1099-INT reporting the interest paid to you. Interest paid by a brokerage may be reported on a 1099-INT included as part of a consolidated report, or 1099-CONS.

Interest income is reported on Form 1040, Line 2a, Tax-exempt interest, and Line 2b, Taxable interest. (More on tax-exempt interest later.)

1099-DIV, Dividends and Distributions

If you own dividend-paying stocks, you may receive a 1099-DIV reporting dividends or other distributions paid to you. If you own stocks through a brokerage, the 1099-DIV is usually included as part of a consolidated report, or 1099-CONS.

Reinvested dividends and distributions are still considered income, regardless of whether you received any cash.

Dividend income is reported on Form 1040, Line 3a, Qualified dividends, and Line 3b, Ordinary dividends. (More on the differences between qualified and ordinary dividends later.)

1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

If you received any payouts from a retirement plan, pension, or annuity, whether your own or one you inherited as a beneficiary, you should receive a 1099-R. The form also reports IRA rollovers, or moving funds from a traditional IRA to a Roth IRA.

Payments from an IRA, or rollover amounts, are reported on Form 1040, Line 4a, IRA distributions, and Line 4b, Taxable amount. (More on IRAs and the differences between traditional and Roth retirement accounts later.)

Payments from pensions and annuities are reported on Form 1040, Line 5a, Pensions and annuities, and Line 5b, Taxable amount. (More on types and tax treatment of pensions and annuties later.)

SSA-1099, Social Security Benefit Statement

If you received retirement, Medicare, or disability benefits from the Social Security Administration, those amounts are reported on Form SSA-1099.

Amounts from Social Security are reported on Form 1040, Line 6a, Social Security benefits, and Line 6b, Taxable amount. (More on the tax treatment of Social Security benefits later.)

1099-B, Proceeds from Broker and Barter Exchange Transactions

If you sold stocks or other investments, you should receive a 1099-B reporting those transactions. If you own stocks through a brokerage, the 1099-B is usually included as part of a consolidated report, or 1099-CONS.

The form reports the proceeds and date of the sale, along with and the original cost and purchase date (if available). This allows for calculating the gain (or loss) on these transactions, which may be reported on Form 8949, Sales and other Dispositions of Capital Assets, or Schedule D, Capital Gains and Losses.

Capital gains and losses are reported on Form 1040, Line 7, Capital gain or (loss). (More on capital gains and losses later.)

1099-S, Proceeds from Real Estate Transactions

If you sell a piece of real estate you own, you should receive a 1099-S reporting the gross proceeds (selling price) from the sale.

Your actual taxable income from the sale will be different, depending on your basis in the property and any deductible expenses of the sale.

If you sell your personal residence and meet two criteria—generally, you owned and lived in the home for at least two of the last five years—you may be able to exclude up to $250,000 of gain ($500,000 if you’re married filing jointly). Because of this exclusion, title companies will often not report a 1099-S for the sale of a personal residence unless your selling price is substantially higher than the price you paid for the property. Even if you do not receive a 1099-S, you should still report the sale on Form 8949, Sales and other Dispositions of Capital Assets, and Schedule D, Capital Gains and Losses.

If you sell an investment property, such as a rental, you report the sale on Form 4797, Sales of Business Property.

1099-NEC, Nonemployee Compensation

If you received amounts paid to you or your business as an independent contractor, freelancer, or vendor that isn’t reported elsewhere (such as a 1099-K, see below), those amounts may be reported to you on Form 1099-NEC. The form indicates the total paid and any income tax withholding (though the latter is rare).

These amounts usually include income derived from self-employment, so if one is issued to an individual’s Social Security Number, IRS expects to see the amount included in Schedule C, Profit or Loss from Business (Sole Proprietorship), Line 1, Gross receipts or sales.

Omitting these amounts from the return, even if properly reported elsewhere, such as an S corporation return, can generate an audit for both unreported income and unpaid self employment tax.

If you report business income on a return other than Schedule C, you should submit an updated Form W-9, Request for Taxpayer Identification Number and Certification, to anyone reporting income to you on a 1099-NEC. (More on Form W-9 later.)

1099-K, Payment Card and Third Party Network Transactions

If you used a payment settlement entity (PSE), such as Stripe, PayPal, Etsy, or Uber, to collect payments for goods or services, the PSE reports those payments on Form 1099-K. Up until 2021, PSEs were not required to issue a 1099-K for sellers with 200 or fewer such transactions and an aggregate gross amount of $20,000 or less; however, the American Rescue Plan Act (ARPA) significantly lowered the thresholds to $600, with no minimum number of transactions.

Amounts from a 1099-K will usually be included in Schedule C, Profit or Loss from Business (Sole Proprietorship), Line 1, Gross receipts or sales.

If you sold personal items, such as on Ebay, you should report the transactions on Form 8949, Sales and other Dispositions of Capital Assets, or Schedule D, Capital Gains and Losses. Capital gains and losses are reported on Form 1040, Line 7, Capital gain or (loss).

1099-G, Certain Government Payments

If you received a state income tax refund or unemployment insurance benefits, you should receive a 1099-G.

State income tax refunds are taxable if you deducted the amount on your federal tax return. They are not taxable if you took the standard deduction. Taxable state income tax refunds are reported on Form 1040, Schedule 1, Line 1, Taxable refunds, credits, or offsets of state and local income taxes.

Unemployment insurance benefits are taxable income, with one exception: if you received payments in 2020 and your modified adjusted gross income (AGI) was less than $150,000, you could exclude up to $10,200 on your federal tax return. Taxable unemployment insurance benefits are reported on Form 1040, Schedule 1, Line 7, Unemployment compensation.

1099-C, Cancellation of Debt

If a creditor forgave debt you owed, you should receive a 1099-C reporting the amount of debt canceled.

Forgiven debt is generally considered taxable income, with very few, limited exceptions. Taxable amounts of canceled debt are reported on Form 1040, Schedule 1, Line 8c, Cancellation of debt.

1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA

If you took distributions from your Health Savings Account (HSA), you should receive a 1099-SA reporting those amounts. (Archer Medical Savings Accounts, or MSAs, were created in 1996, but no new ones have been created since 2007.)

HSA distributions can be used to pay for qualifying health and medical expenses with no tax implications. No qualifying distributions are taxed as ordinary income.

Taxable distributions are reported on Form 1040, Schedule 1, Line 8e, Taxable Health Savings Account distribution.

1099-MISC, Miscellaneous Income

Form 1099-MISC serves as a catch-all for income that needs to be reported but does not fit on another form.

Some common forms of income reported on 1099-MISC include rents, royalties, prizes and awards, and payments to attorneys (usually for settlements).

Between 1982 and 2020, 1099-MISC was used to report nonemployee compensation, or payments to independent contractors. Because the 1099-MISC combined different forms of income that have different reporting due dates, IRS revived the 1099-NEC as a separate form to report nonemployee compensation.

In part 2, I’ll cover forms reported that indicate potential deductions or credits.