1098 vs 1099 Tax FormsDifferences & Which One is Best for You?

Written By:
Adiste Mae

There are several tax forms that are used by individuals when filing their income tax returns. 

Two of the more commonly used forms are the 1098 and 1099 Forms.

Form 1098 is used to report any Mortgage Interest of $600 or more while the Form 1099 is used to report non-wage income over $600. 

These forms are especially helpful so that an individual can track their taxable income and possible deductions. 

Form 1098

When reporting mortgage interest received during the course of the year from an individual or a sole proprietor that is $600 or more, the form 1098 is used.

However, if the amount that was paid is less than $600, the form 1098 may not be received from the lender but one will still have the option of entering the amount should the deductions be itemized on their tax return. 

Under Schedule A Line 10 in the form 1098, the mortgage interest is entered as an itemized deduction.

Other interest items can be entered in the next line.

When claiming a standard deduction, itemized deductions cannot be written off. 

Form 1098-T and Form 1098-E

Forms 1098-T and E are used for educational expenses.

Tuition fees and tuition related expenses reported during the year are reported by colleges using Form 1098-T.

You will receive Form 1098-E when a lender has been paid more than $600 in interest on student loans during the year.

If a person is qualified to deduct this interest, it shall be reported in their 1040 under line 33, and can be taken as a deduction even if the interest paid is less than $600 and they didn’t receive Form 1098-E. 

Form 1098-C

This tax form is sent by charities qualified to take tax-deductible donations to persons who have donated vehicles that are worth more than $500.

This donation can be reported as a deduction under Schedule A Line 17 of Form 1098-C.  

Form 1099

The different types of non-wage income are reported using the Form 1099 family.

1099-MISC

The Form 1099-MISC is sent out by businesses to freelancers if they receive a freelance income of $600 and above.

For example, say a handyman did $800 of repairs for company XYZ – they will receive a 1099-MISC from company XYZ with the amount of $800 reported in box number 3.

If you are a sole proprietor, the income is reported under Schedule C along with the other business income earned. 

As a rule, all income earned must be reported in the tax return even if the amount is less than $600 even when Form 1099-MISC is not received because only businesses can send a Form 1099-MISC. 

1099-R

Withdrawals from the retirement plan are reported in the Form 1099-R.

The types of withdrawals from the retirement plan include:

• Loans from a 401(k) account
• Pensions and annuities
• IRA distributions
• IRA rollovers
• IRA distributions under a divorce decree that says you have to give your spouse some of the money.

Sometimes, a loan from the 401(k) is not subject to tax provided that the money is paid back. 

Other 1099s

Among the other types of Form 1099 are:

• 1099-DIV – Dividends
• 1099-C – Cancellation of debt. But a forgiven debt can count as taxable income.
• 1099-INT – Earned interest.
• 1099-SA – Distributions from various types of Health Savings Account.

Keeping the Forms

The rule that is applied to Tax Forms 1099 and 1098 is to keep the paperwork for these taxes for three years after a tax return is filed, and six years if the income is underreported by 25% or more.

Tax Forms 1099 and 1098 are also sent to the IRS whenever a business sends an individual these forms so that the agency can also check the accuracy of the tax returns submitted.