Every year, taxpayers gather all their tax documents (W-2’s, 1099’s, etc.) and enter their information into tax software or have their trusted tax preparer handle their tax returns. All of us hope to owe nothing or even better, get a refund. It’s no surprise that when we don’t receive a 1099, the first thought most of us have is “Do I have to report this income?”.
Many people assume a 1099 would have been received if the income is required to be reported. However, there are many reasons why you may not receive a 1099, ranging from reporting requirements to simple oversight. Whatever the reason for not receiving a 1099, it doesn’t free you from reporting the income.
There are several types of 1099’s you may receive depending on the source of income, and each has its own reporting requirements. For example, you may receive a 1099-DIV for dividends, 1099-INT for interest income, 1099-B for stock sales, and a 1099-R for withdrawals from retirement accounts. As a freelancer, the most common types of 1099’s you’ll see are the 1099-MISC and 1099-K. For the purposes of this article, we will be focusing on the 1099-MISC and 1099-K forms and when you can expect to receive them.
As a freelancer, the main forms you may receive are the 1099-MISC and the 1099-K. Your clients are required to furnish a 1099-MISC if they paid you at least $600 during the year. You’ll receive a 1099-MISC from the client that paid you that income. However, this is not the case with 1099-K’s. 1099-K’s are issued by “Third-Party Settlement Organizations”. To put it simply, this is who is sending you payment but not who the work was performed for. For example, let’s say you did work for John Doe through Upwork and were paid $800 for the year.
This exceeds the $600 threshold for a 1099-MISC. In this scenario, you shouldn’t expect John to issue 1099’s to all the freelancers that worked for him through Upwork during the year. John didn’t pay you directly. He paid Upwork who then paid you. The reporting requirement shifts from John to Upwork and this triggers a 1099-K instead of a 1099-MISC. The reporting threshold for a 1099-K is met when the payer (Upwork) issues payments exceeding $20,000 and processes more than 200 transactions during the year. It is possible to receive one 1099-K for multiple income sources (i.e. multiple Upwork jobs) as opposed to receiving a 1099-MISC from each client you did work for.
We’ve seen that depending on your individual circumstances, that you may not receive a 1099. Even if you don’t receive a 1099, that income still must be reported on your tax return. What if you made less than $400 from freelancing? There has been a lot of confusion on the “$400 threshold” regarding self-employment income.
Some believe that if your self-employed income is under $400, then you don’t have to report it because the income is not subject to tax. This is partially correct. There is one tax you won’t need to pay if your net earnings are less than $400: the self-employment tax. However, you still need to report the income on your tax return because your net earnings are still subject to income tax.
Assuming the reporting thresholds have been met, you should expect to receive a 1099. Just because your client is required to issue a 1099 doesn’t mean you’ll receive one. This could be due to an incorrect mailing address or the client simply neglects to issue one. Whatever the reason, it’s good practice to keep your own records of the income you’ve earned throughout the year.
One option is to use a 1099 expense tracking software to record your business income. Having accurate records of your business activities will avoid any unnecessary headaches while trying to gather the information during tax time. Another important thing to keep in mind is that a 1099 may have been sent to the IRS even if you didn’t receive one.
Ok, what if you didn’t keep good records and you didn’t receive a 1099 that should have been sent to you. What do you do? One option you have is to request your “Wage and Income Transcript” from the IRS website. This transcript will list all W-2’s, 1099’s, and other tax forms reported to the IRS. Note the due dates for businesses to submit each form:
- 1099-MISC forms must be submitted to the IRS by January 31st
- 1099-K’s can be e-filed as late as March 31st
If you’re going to use your tax transcripts to determine your freelance income, be sure to wait as close to the tax deadline as possible to allow the forms to be submitted to the IRS and updated in their system.
You are not required to send your 1099’s with your tax return. If you’ve kept accurate records of the income you earned, there is no need to request a 1099 from your client. By requesting a 1099, you could potentially open yourself up to other issues. For example, your client may have already sent a 1099 to the IRS but not to you. In your request for a 1099, they could inadvertently send a duplicate to the IRS.
Another scenario is that your client overstates the amount you earned. In both cases, the IRS will think that you underreported your income when you filed your tax return (even if you reported the correct amount!). You can ask your client to remedy this situation, but the bigger point is that most of this can be avoided by keeping accurate records. Whether or not you should reach out to your client regarding missing 1099’s is dependent on your relationship with them. Either way, the IRS will most likely catch a missing 1099 form.
There are instances where clients and third parties, such Upwork, are not required to send you 1099’s. Even when required, there will be times when you still don’t receive a 1099. In either case, all the income you’ve earned is reportable and taxable. Keep good records of your business activities. Use 1099’s that you do receive as verification against your own records. For 1099’s you didn’t receive, utilize the IRS transcript tool to see what was reported to the IRS and take appropriate action if the amounts are incorrect.
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