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  • Paul Carrano

Common IRS Form Definitions

Every area has its own jargon that those in the area use without thinking while those on the outside are left clueless and shaking their heads. It is no surprise that accounting and taxes have their own language and it is also no surprise that accounting jargon is full of different numbers, like 1040, 1099, 1095, and to mix things up with an occasional letter, the W-2.

As we all file out taxes every year, these are all things that may sound very familiar to most people, but that doesn’t mean that people know what they are. The one thing that all of these things have in common is that they are all references to the forms most people have to fill out or receive from others.

The most common number in Federal Income Tax is 1040. 1040 is the actual federal tax return form itself. For most people, everything begins and ends with the 1040. W-2 is another form that most people have probably heard of. The W-2 is the form you receive from your employer that shows how much money you have earned, including all the money that was deducted from your paycheck. Again, the W-2 is pretty straightforward.

While those two forms are very common and defining them is pretty simple, we would like to spend some time discussing the other two forms we mentioned that are not as straightforward as the others. These are the 1095 and 1099.

1095 – Health Insurance Coverage

Form 1095 is a relatively new form that came into being with the Affordable Care Act, known as Obamacare. The ACA included penalties for lack of coverage for individuals and employers. There are three different variations of Form 1095 depending on where an individual gets their health insurance.

1095-a – Healthcare Marketplace

Individuals with a health insurance marketplace plan receive Form 1095-A. The form includes the individual's and their dependents' names, the amount of coverage they have, any tax credits they are entitled to and whether they used them to pay for health insurance, and the amount they paid in total for coverage.

1095-b – Small Businesses

Employers with fewer than 50 full-time employees that offer health coverage, as well as health care insurance providers, send the 1095-B form to members of their health insurance plans. 1095-B includes the type of coverage the individual has, dependents covered, and the period of the coverage. Form 1095-B is used to verify on tax returns that an individual and his or her dependents have at least minimum essential coverage.

1095-c – Corporate Provided Health Insurance

Form 1095-C is used by larger companies with 50 or more full-time or full-time equivalent employees. This form is used by the employee to report the healthcare coverage offered to them by their employer. The IRS uses the information on it to determine whether the employee or the employer has to pay a fine for failing to meet the healthcare coverage requirements under the ACA.

1099 – Nonemployment Income

While many people might not be familiar with the 1095, most people are familiar with 1099, especially people who freelance. The 1099 form reports all the different types of income an individual receives throughout the year outside of their regular salary. This type of income is also referred to as income from non-employment-related sources.

The confusing part of the 1099 is there are so many different types of 1099s. When you receive this form, there is always a letter or group of letters after 1099. These letters are designed to tell you where that income came from. The good part of this is that regardless of what the letters are on the form you receive, they all report the same thing and are all treated identically. For the sake of clarity, we will define a few of the more common types of 1099 that you may receive.

  • 1099-DIV – Income from the dividends and distributions from stocks or mutual funds that you hold.

  • 1099-INT – Income received from Interest you have received from your banking institution.

  • 1099-MISC – Miscellaneous income is payment received for work you did as an independent contractor. The difference between the 1099-MISC and a W-2 is that you receive a W-2 when you are employed by the company you work for as opposed to being hired as a freelance worker or independent contractor,

  • 1099-R – Income received from a retirement account, such as distributions from pensions, retirement or profit-sharing plans, IRAs, or any other source of retirement income.

These are some of the more common types of 1099, but there are far more types. In fact, there are more than 20 different types of 1099 out there to track income from all sorts of places, such as the 1099-LTC, which is used to report income from long term care plans or accelerated death benefits, or the 1099-C which reports the cancellation of debt, since canceled debt is considered to then be a form of income. They have thought of everything.

In the end, it is good to know what all of these forms are. However, even if you don’t quite get the difference between a 1099 and a W-2, don’t make any assumptions regarding the importance of these forms. They are all important and if you receive these forms, put them to the side and give them to us when you come down to get your annual tax return completed.

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