Intuit Academy Tax Practice Exam 2025 - Free Tax Practice Questions and Study Guide

The purpose of a 1099 form is to report various types of income other than wages, such as income earned by independent contractors, freelancers, and other non-employee payments. This form helps the IRS track income that taxpayers may receive outside of traditional employment. For example, if a business hires a contractor to provide services and pays them $600 or more in a year, it's the responsibility of the business to issue a 1099-NEC form to report that income. This ensures that the income is reported accurately and contributes to proper tax reporting.

Other forms, such as the W-2, are specifically designed for reporting employee wages and salaries, which is why options that refer to employee compensation or tax deductions don’t apply to the purpose of the 1099 form. The 1099 form provides an important means for the IRS to understand an individual’s total income from various sources in order to enforce tax compliance.