Tax season is upon us once again, causing businesses and individuals undue stress over what to claim and how to get the best possible return. In the era of side hustles and home-based businesses, matters are complicated further by confusion over claiming a 1099-MISC form. Let’s look at what the 1099-MISC is, and how you deal with it.
What Is The 1099-MISC Form?
The 1099-MISC form is used by companies to track payments to non-employee, independent contractors. For example, if you are a freelance writer working on your side hustle and write an article a month for a business in the United States, you will receive a 1099-MISC form. Note, the IRS only requires businesses to send these forms if they have paid the individual over $600.
For this process to flow smoothly, you may be required to fill out a W-9 form upon signing your contract with the company paying you. If you are located outside the US, you will have to sign a W-8 form instead.
Where Do I Report My 1099-MISC Form?
Though the IRS does not require that businesses send 1099-MISC forms unless they’ve paid over $600 to an individual contractor, you are required to report every cent of income you receive.
On the 1099-MISC form, your income from that company should be listed in box 7 as a form of non-employee compensation. According to the IRS, this amount can be claimed in one of the following areas:
- Schedule C (Form 1040) – Profit or Loss from Business (Sole Proprietorship). This is the main form for reporting a 1099-MISC.
- Schedule C-EZ (Form 1040) – Net Profit from Business (Sole Proprietorship). You may be eligible to use this form rather than the basic Schedule C, depending on your business.
- Schedule SE (Form 1040) – Self-Employment Tax. This schedule is required if you make $400 or more from self-employment.
- Form 1040-ES – Estimated Tax for Individuals. Depending on your situation, you may be required to make estimated tax payments.
For more information on which forms you require during tax season, visit https://yearend.waveapps.com/.
What About Social Security and Medical Tax?
There seems to be some confusion about whether or not social security and medical taxes must be paid on 1099-MISC income. The answer is yes, that all US citizens are required to pay these taxes. If you are self-employed, your Social Security tax is referred to as self-employment taxes. These taxes are based upon your net income from the business (see above for form requirements).
If you are from a country outside the US, you can avoid double taxation by ensuring you have everything in order. The income from the 1099 will have to be reported in accordance with your country’s requirements. The business you are working for has the right to withhold up to 30% from your payment as taxation. If you are in a country with a tax treaty, such as Canada, you can fill out forms to have this amount paid out to you. If done correctly, you should be paying your governing body and not the IRS.
What If I Don’t Receive My 1099 Form?
If you do a lot of work for newly established businesses, they may not have all their ducks in a row when it comes to reporting taxes. If this is the case and you do not receive your 1099-MISC form, you should proceed as though you have. Revisit your records and record the overall amount. Be sure to keep your backup paperwork to prove your claim in the event of an audit.
When it comes to taxes, organized recordkeeping is of the utmost importance. If you have multiple independent contractor agreements, things can get messy in a hurry. Keep track of your income and expenses, and tax season should be pretty straightforward.