1099 Miscellaneous

What Is 1099 MISC?

A 1099 MISC.  is one of the forms in the 1099 series provided by the IRS (Internal Revenue Service). It is a document filed to report or declare the miscellaneous payments payed / made to individuals who are non- employees but still work under or for someone. A few examples would be freelancers, independent contractors etc.

This form is used when the payment is over a $600 for that calendar year.

The 1099- MISC form is for you to report your income (Non-employee compensation) on your personal Income Tax returns. You will be required to pay both the income tax and the self-employment tax on the income showed in this form.

When Do I Receive a 1099 MISC Form?

You receive a form 1099 MISC, when you work as a non-employee (i.e. a freelancer) for a year and your payment from that employer is above $600.  The employer will keep track of your payment and send you the form along with your compensation at the end of the year showing your complete earnings. This form is not issued while making personal payments.

Who Needs To File The 1099- MISC Form & why?

All the employers who used third party services of an independent contractor/Freelancer and paid them $600 or more need to fill this form to let the IRS know of their payment and this income to the individual.

If you are an independent contractor who is receiving the payment, it is not your job to fill this. Your payer is required to do that for you. If you find any discrepancies in the form or if you do not receive this form you will need to follow up with your employer/ payer.

What Do You Do With This 1099-MISC Form?

As the end of January every year, all the employees receive a W-2 form from their employers which is the wage and tax statement so that this can be included in their income tax statements.  Similarly, All the Non- employees, independent contractors and other business whose income was $600 or more in that year receive this 1099 MISC form for them to report this income in their Income tax returns.

The payers will give this form to you along with the payment at the end of the calendar year.

This doesn’t mean that you will not include the income below $600 in your income tax. You will still need to include whatever compensation (even less than $600) you had received on your income tax returns.

If you have a tax filer/ preparer you will need to handover this form to that person along with the other documents required to file the income tax returns.

If you fail to update or report this the penalty would be almost up to 50% of the compensation you received.

Requirements/ Eligibilities For 1099-MISC Form:

Generally, A form 1099- MISC is received by those to whom the employer has payed/ compensated the following: (can be multiple from the below statements)

  • For Services equal to $600 or greater. These can also be rents, rewards, prizes, awards or any other forms of income.
  • Broker payments or royalties equal to $10 in lieu of dividends of tax-exempt interest.
  • An attorney’s gross proceeds (Any kind of agreement or settlement- not exactly paid for the legal services of the attorney)
  • If you paid a partnership amount worth $600 or more, that also needs to be included on the 1099-MISC form.

Also, the amount obtained from the direct sales of consumer products resale anywhere except a permanent retail, whose amount is at least $5000 is also to be included on the 1099-MISC form.

What Not To Include On 1099-MISC Form?

  • The major thing which is not to be included on this form is the employee income. The W-3 form received by the employees is not be included in this form.
  • Payments made to foreign governments or tax exempt organizations.
  • Payments made to corporations (it must not be a re-portable payment or payment to an attorney in a corporation offering the services- the corporation status is not considered here and hence it needs to be included )
  • Federal tax withholdings

Self-Employment Tax and No Withholding On 1099 Income:

Self-employment tax:

As mentioned earlier, along with this income, the social security / Medicare Tax (often called as Self-employment tax for independent contractors) is to be paid.  The self-employment tax is calculated on the basis of your net business income.

Typically, Social Security taxable wages generally have a limit of maximum each year. Firstly, wages from employment are taken into account and then self-employment income is considered. It is only considered till the yearly limit of the maximum taxable income is reached.

However, there is no yearly limit for the Medicare Taxes.  Both the employee and non- employee income is subjected to this tax.

No withholding:

There is no tax withholding on your 1099-MISC form. Employers/Payers do not withhold federal income taxes from the independent contractors (Any Non- employees), except in specific circumstances. The withhold Social Security and Medicare taxes (for the non-employees) are also not withheld by the employers.

How To File The 1099-MISC?

For filing the 1099- MISC for the income tax returns you must first know what kind of a business you own. Each has different instructions on how to file this form.

If you are a sole owner/proprietor or a company/ business that provides liability protection for owners (single-member LLC owner): You will be reporting this (1099 Income) on Schedule C—Profit or Loss from Business.

When you fill out this Schedule C you include and report all of the businesses’ income and expenses.

When you report everything which include – Fees to the services from professionals, purchases made in supplies for business or equipment needed contribute in reducing the net income from your business.

On the Line 12 of your personal income tax returns filings, this net income is included along with all other types of income, including income as an employee and also the income from investments. Your total personal income taxes are calculated by your total adjusted gross income.

If you are a partner in a business that is your business is partnership based or a multiple-member LLC, or a different corporation, your 1099 income is to be filed as part of your business income tax returns.

What If You Have Multiple 1099-MISC Forms?

Being an independent contractor/ freelancer generally means you work on multiple platforms and for different payers. All of the forms you will receive have to be entered separately on your tax returns.

If you are a business, all you 109- MISC forms are summed up and added to Schedule C for that business.

If you have multiple businesses, you will have to be careful in connecting and adding the right set of forms under the right business.

What If You Do Not Have a 1099-MISC Form?

This generally happens when

  1. The payment being made to you is less than $600
  2. The payer/ business has forgotten to give you this form.

Regardless, all incomes must be reported to the IRS and tax is to be paid on all incomes.

In both the cases, a no 1099-MISC must be filed with the IRS and provided to the worker. Even if any of your incomes do not have a matching form you will need to include and report hence paying the taxes on all 1099 incomes every year.

What If You Are Not Self-Employed?

If you are not self- employed or do not recognize yourself as one, you will first need to identify the location of your income on the 1099-MISC form.

If it is in the BoX-3 (Other Income) – report and add this information on this 1099-MISC on Line 21,

If it is in the Box- 7(Non- employee income) – report and add this income on Line 21 of your personal income tax returns.

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