Form 1099-MISC is used to report miscellaneous payments made to nonemployees, such as independent contractors. Read more to find out how this affects you, the small business owner.
If you’re starting to work as an independent contractor or freelancer, you’ve likely heard people refer to Form 1099. A 1099 isn’t just one form, but actually a series of documents (including the 1099-MISC) that reports the various types of income you receive.
For instance, you may receive a 1099-INT to report interest income received from your bank, or a 1099-R showing a distribution from a retirement account. But if you’re an independent contractor, the form you’re most likely to see is the 1099-MISC.
So we want to find out:
What is this form all about? How should you respond if you receive a 1099-MISC? What should you do if you need to send a 1099-MISC?
What Is a 1099-MISC?
Form 1099-MISC is used to report miscellaneous payments made to nonemployees, like independent contractors, to the IRS. You’re required to issue a 1099-MISC to someone based on two thresholds:
You’ve paid at least $10 in royalties or broker payments, in lieu of dividends or tax-exempt interest You’ve paid at least $600 in services, rents, prizes or awards, and other income payments
You can find the full list of payments that qualify for a 1099-MISC on the IRS website.
1099-MISC vs. W-2
Whether you send a 1099-MISC or a W-2 depends on who you are paying. A W-2 is issued for employees to report their wages and taxes withheld (like payroll taxes). A 1099-MISC is for any payments you made to a nonemployee, for example, an independent contractor.
Before you start paying people, make sure to learn the difference between an employee and an independent contractor.
What Do You Do If You Receive a 1099-MISC?
If you received a 1099-MISC form from someone who paid you for work you performed, you must report this income on your tax return.
When you receive a 1099-MISC, you should first check your records to ensure that what is reported on the 1099 form is correct. A 1099-MISC form gets sent to the IRS to report how much you’ve been paid. If the IRS received the wrong information, that could cause confusion with your tax return.
How you report it depends on the type of business you own. If you are a sole proprietor or single-member limited liability company (LLC), you’ll report 1099 income on Schedule C, Profit or Loss from Business attached to your individual tax return. If your business is a partnership, multiple-member LLC, or corporation, your 1099 income is reported on the business tax return.
But remember, you don’t want to double count your income. If you’ve already included this income on your tax return—you may have kept track of income during your bookkeeping—don’t add the 1099-MISC income to your tax return.
What If the Information on Your 1099-MISC Is Wrong?
The IRS uses 1099 forms to make sure the taxes owed are paid. It does this by matching the income reported on your tax return to the 1099 forms received from your clients. So if you receive a 1099 that you know to be wrong, you’ll need to act quickly to get it corrected.
First, contact the issuer andContinue reading