What Is an Information Return for Tax Reporting?

Information returns are a fundamental component of the tax system, playing a distinct role from an individual’s annual income tax return. These specialized forms serve to report specific financial transactions to the Internal Revenue Service (IRS), helping to ensure transparency and compliance. They provide crucial data points that aid both the IRS in verifying income and taxpayers in accurately preparing their own returns.

What Information Returns Are

An information return is a document filed with the IRS to report payments or financial transactions that may have tax implications for another party. These returns inform the IRS about income or transactions that could be taxable to an individual or entity. They also furnish recipients with details to accurately report their income. Unlike an individual’s annual income tax return, such as Form 1040, an information return simply transmits data about a transaction.

For example, when a business pays an independent contractor, it files an information return with the IRS and provides a copy to the contractor. This process ensures the tax authority and recipient are aware of the reported income. This highlights the role of third parties in reporting financial data to the IRS, complementing information provided directly by taxpayers.

Types of Information Returns

Information returns report specific categories of income or transactions. Form W-2, the Wage and Tax Statement, is perhaps the most common, detailing an employee’s annual wages and withheld taxes. This form is essential for employees to complete their income tax returns.

The Form 1099 series reports various types of income other than wages. Other common forms include:
Form 1099-NEC: Reports payments of $600 or more to independent contractors or freelancers for services.
Form 1099-MISC: Reports other income like rents, royalties, or prizes generally exceeding $600.
Form 1099-INT: Issued by financial institutions for interest income of $10 or more.
Form 1099-DIV: Issued by financial institutions for dividends and distributions from investments.
Form 1098: Provided by mortgage lenders to report mortgage interest of $600 or more, which can be deductible.

How Information Returns Facilitate Tax Reporting

Information returns promote accuracy and compliance within the tax system. The IRS uses these forms for cross-referencing and verifying income reported on individual and business tax returns. By comparing information provided by third parties, such as employers or financial institutions, with what taxpayers report, the IRS identifies discrepancies and potential errors. This matching process enhances the integrity of tax reporting and ensures all taxable income is accounted for.

Taxpayers also rely on these forms to accurately prepare their own tax returns. For instance, an individual uses the figures from their W-2 to report their wages and withheld taxes on their Form 1040. Similarly, individuals receiving a Form 1099 for freelance income or interest earnings use the amounts listed on those forms to correctly report their taxable income. These standardized documents simplify the reporting process for taxpayers and contribute to the efficiency and transparency of the tax system.

Who Files Information Returns and When

Businesses, financial institutions, and sometimes individuals are required to file information returns. Employers must file Form W-2 for each employee from whom they withheld income, social security, or Medicare taxes, or if they paid $600 or more in wages. Financial institutions file Forms 1099-INT or 1099-DIV for interest and dividend payments to account holders. Businesses paying independent contractors $600 or more for services must file Form 1099-NEC.

Deadlines for filing returns with the IRS and furnishing copies to recipients vary by form type but generally follow a similar schedule. Most information returns, including Form W-2 and Form 1099-NEC, must be furnished to recipients by January 31 of the year following the tax year. The deadline for filing these forms with the IRS or Social Security Administration (SSA) is also January 31, whether filing on paper or electronically. However, some forms like Form 1099-MISC and Form 1098 have a paper filing deadline with the IRS of February 28, and an electronic filing deadline of March 31. If a deadline falls on a weekend or holiday, it shifts to the next business day.