Instructions for Reporting 1099-MISC Income

Report 1099-MISC income correctly to avoid IRS penalties.

Report 1099-MISC income correctly to avoid IRS penalties.

If you receive 1099-MISC income, you’ll report the income differently than W-2 wages you earn from a job. The person who pays you doesn’t take taxes out of your check, so the IRS requires you to use different procedures to calculate your taxable 1099-MISC income. Also, if you hire certain workers, like nannies, construction contractors, landscapers or independent bookkeepers, you might be required to issue a 1099-MISC to the person you hire. You aren’t responsible for withholding taxes from these types of workers, but you could be penalized by the IRS if you fail to issue the 1099.

Form 1099-MISC

Form 1099-MISC is used to report income from miscellaneous non-employee sources. The most common 1099-MISC payments go to those who are self-employed. You’re self-employed if you perform contract or freelance services for a company and are not considered a W-2 employee by the company who hires you. In most cases, the IRS requires several tests be met to qualify a worker as self-employed. For example, if you use your own tools and resources to complete the job, work under minimal supervision, and design and implement the work process, you’re self-employed. In some cases, you may also set your own work hours.

W-9 Form

A W-9 form is required from contract workers. This form lists the name, Social Security number and business structure of the person receiving the income. If you’re a contract worker, you must provide this information to the person paying you. If you’re an employer, download the W-9 form from the IRS website and give it to the person you’re paying. You’ll use information from the form to complete 1099-MISC forms at the end of the year. You must keep the W-9 form on record, but you don’t have to send it to the IRS unless it’s requested.

Recipient Reporting

If you receive a 1099-MISC for non-employee compensation, you earned self-employment income. The IRS treats this as business income, and you must report it on Schedule C. You should receive the 1099-MISC by the end of January. If you earned less than $600, the payer is not required to send you a 1099-MISC, but the income is still taxable, so you’ll still need to report it. The amount shown in Box 7 of the 1099-MISC equals your gross income from the job. In most cases, you can also use Schedule C to deduct unreimbursed expenses you paid to earn the money, such as tools, supplies and vehicle operating costs. Your net profit is the amount you earned after expenses are deducted – this is the amount you’ll pay tax on. If your net profit is more than $400, you’ll need to calculate self-employment tax on IRS Schedule SE. If your net profit is less than $400, you won’t be subject to self-employment tax, but you’ll still pay income tax on the amount.

Provider Reporting

In most cases, if you pay someone who is not your employee more than $600 for services, you’ll need to issue a 1099-MISC. The $600 limit is based on annual amounts you pay to one person or company. Before you issue the 1099, look at the W-9 form you asked the worker to complete. If the worker listed his business as a C corporation or S corporation, you don’t have to issue the 1099, but you must do so for all other business types. You’ll need to provide the 1099 to your worker by January 31 and to the IRS by February 28. If you send the forms late, or don’t send them at all, you could be penalized up to $100 per 1099-MISC. When you send the 1099-MISC to the IRS, you’ll need to attach Form 1096 to the front and mail it to the address shown on the 1096. These forms use special magnetic ink, so you can’t print them from the IRS website. However, you can order the forms from the IRS for free on the website, or purchase them from office supply stores.

Video of the Day

Brought to you by Sapling
Brought to you by Sapling

About the Author

With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.

Photo Credits

  • Ryan McVay/Digital Vision/Getty Images