Home > Basics > What are information returns?

What are information returns?

Information returns are documents that record payments by individuals, estates, corporations, and trusts to any other party. There are over 30 types of information returns that are required by the Internal Revenue Service to report transactions. The IRS requires that information returns are sent to both the payment recipient and the IRS. Payment recipients require a copy of information returns to calculate their own taxes and also to match the IRS’s record of their income. Most information returns must be submitted to the payment recipient by the end of January and to the IRS by the end of February. A few other types of information returns have different deadlines.

Information returns are a continually changing sector of the tax industry because of the complex nature and variety of transactions in business. There are dozens of types of payments that should be reported by information returns including wages, severance pay, rents, gambling winnings, annuities, royalties, and many more. The minimum amount that requires reporting varies depending on the type of payment. For instance, for most but not all types of 1099-MISC payments, the minimum amount that must be reported is $600 or more. However, for interest payments, which are reported with the 1099-INT form, any income above $10 requires reporting to the IRS.

Businesses and individuals have recently become more scrutinized by the IRS for not filing information returns. Because of information returns being purposely miscalculated or not reported, there is a substantial tax gap – the difference between taxes that are actually paid and should be paid – that is over $300 billion per year (as estimated in 2005 by the IRS).

The IRS recovered approximately $50 billion of that unreported income, leaving $250 billion more that could potentially be recovered. Thus, the IRS has every incentive to penalize and audit businesses and individuals that do not correctly report their payments with information returns. The IRS has openly stated that they are seeking to regulate information returns more because of this gigantic tax gap. In the future, more laws will likely be passed that will penalize late or unreported information returns.

The two most familiar types of information returns are the 1099 and W-2 form. The 1099 form is used to report the earnings of contractors while the W-2 form is used to report the earnings of employees. Although it is sometimes unclear, it is important for both businesses and contractors to know the difference between an employee and contractor for tax purposes. This is because the difference affects tax withholdings and other tax calculations. If for any reason the difference is unclear, then IRS Form SS-8 can be used to differentiate between the two. A business, employee, or contractor can fill out the form and send it to the IRS, and they will officially determine the classification of the worker.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)
VN:F [1.9.22_1171]
Rating: 0 (from 0 votes)
Facebooktwittergoogle_pluslinkedinby feather

Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.

  1. No comments yet.
  1. No trackbacks yet.