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Accounting and Tax Tips Blog

We are constantly being asked questions about the 1099 tax form and how it applies to sharing economy workers, independent contractors, and freelancers.  To clear the air, we wanted to put a fully encompassing blog post together to cover this.

The 1099:

A 1099 Form is a tax form that you get in the mail if you received certain types of income during the year. You generally have to report the information from a 1099 on your tax return.

A 1099 Form is used to report various types of income other than wages, salaries and tips to the IRS for taxation purposes. A 1099 must be issued for most non-incorporated vendors that are paid $600 or more for services rendered in one calendar year. All disbursements issued to attorneys, regardless of amount, must be reported on Form 1099. If employees are reimbursed for their expenses and company policy does not require receipts be submitted, a 1099 must be issued as long as the total reimbursement for the year exceeds $600.

This table lists each type of 1099 form by number and title, shows each form’s reporting requirement (the minimum dollar amount which must be reported), and the due date on which the form should be received by you.

Why 1099’s are important:

A 1099 is important because an identical form is sent directly to the IRS.  The form contains the tax payers employee identification and Social Security number. You can’t “ignore” the form once it’s sent out to you. It’s necessary to make sure you’ve received the correct forms, and contact the IRS immediately if you have not received a form in error. Failure to file will result in penalties starting the first day your payment is late.

The 1099 Reporting Requirements:

A 1099-MISC Form reports income that exceeds $600 generated from independent contracting services, government payments, dividends & interest, etc.  Generally, the entity that pays you must fill out the appropriate 1099 form, as there are different forms for each type of earned income. The form must be sent out by January 31st. For example, Form 1099-MISC instructions are used to report payments to independent contractors when payments exceed $600 during the year.

Businesses must issue 1099-MISC forms to their subcontractors and in turn may receive 1099-MISC forms from their clients. When preparing 1099 forms for 2015, businesses are required to issue a 1099-MISC to individuals, partnerships, and LLCs.

A Form 1099-K includes the gross amount of all reportable payment transactions.  You will receive a Form 1099-K from each payment settlement entity from which you received payments in settlement of reportable payment transactions.  A reportable payment transaction is defined as a payment card transaction or a third party network transaction.

  • Payment card transaction means any transaction in which a payment card, or any account number or other identifying data associated with a payment card, is accepted as payment.  
  • Third party network transaction means any transaction that is settled through a third party payment network, but only after the total amount of such transactions exceeds $20,000 and the aggregate number of such transactions exceeds 200.

The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.

What if I do not receive a 1099 – do I still need to file it in my tax return? What happens if I do not report this income, what are the ramifications?

Yes, if you do not receive a 1099 and you were paid some form of self-employment income, then you must file.  As previously mentioned, if you do not report the income, it is still subject to the tax penalty.  Contact the IRS as soon as possible if you have not received expected forms.  Even if you did not receive a 1099, you must report all income – not doing so would be considered tax evasion. 

Estimated Tax Payment Deadline for 1099 Filliers

For paper filed returns, file Copy A of all paper Forms 1099 with  Form 1096, Annual Summary and Transmittal of U.S. Information Returns by February 28th; For electronically filed returns, file Copy A of all paper Forms 1099 with Form 1096, Annual Summary and Transmittal of U.S. Information Returns with the IRS by March 31.

What Is a W-9

When you begin contracting, you may be required to file a W-9 tax form.  The W-9 tax form is used by the various companies (e.g. Uber, Airbnb, etc.) to issue you your 1099.  You can use your personal information and you do not need a formal legal entity (e.g. LLC/S-Corp) to file a W-9 tax form.  

This is also important for a business to have this documentation as it will be substantive proof that the contractor was paid and the business will be able to deduct the independent contractor’s expenses as a reasonable business expense.

If you have any further questions regarding 1099 taxes, please feel free to contact us.