An information return is a document that provides information about non-wage transactions to tax authorities. There are a number of so-called “reportable transactions” that must be reported on information returns. Failure to file such a form can result in legal penalties and mix-ups on a tax return that may increase tax liability.
Information returns must be filed by a certain date, and tax liability is not incurred by filing the document. They must also be incorporated into a tax return. For example, when a person earns interest on a savings account in the United States, the bank will file a 1099-INT. This form discloses the amount of interest earned and a copy is sent to the taxpayer, as well as to the Internal Revenue Service. When the taxpayer fills out a tax return, there is a space on the form to disclose interest income and the information from the 1099-INT is entered into that space.
One form of data on an information return is money that someone earned but did not receive in the form of wages. This includes payments to subcontractors, interest earnings, and dividends. These forms can also disclose losses, changes in tax status such as the addition of a new dependent to the family, and so forth. The purpose of the information return is to ensure that tax authorities have information about a taxpayer's household or business and sources of income that may be relevant to tax liability.
Tax agencies usually provide a list of information returns, often on their websites for convenience. This list describes each form by number and name and explains what it needs to be used for. For most people, information returns are generated automatically for certain types of transactions and they do not need to do anything other than making sure that they remember to include the data on the information return when they are doing their taxes. Companies involved in transactions that require information returns are familiar with tax law and know when and how these forms need to be filled out.
If someone receives an information return and the information looks erroneous, the issuer of the return should be contacted so that the information can be corrected. People who are expecting information returns and do not receive them by the filing deadline can call the issuer to inquire about their status. There may be cases in which an information return is not required if a transaction is too small, and thus no form will be sent out.