What Does it Mean When You Get a 1099?
Congratulations. You did it. You managed to escape (to some extent or another) the monotonous clutches of working under the cruel micromanaging eyes of someone else. You are self-employed! You are one of the 30% or so of workers that can proudly say they work for themselves. This deserves the highest of fives! Now after that congratulatory self-appreciating gesture comes the requirements to know a little bit about the nuances of being self-employed. No, do not run and panic, this is easier than it sounds. I will be here to guide you through the simplest to the most complex of topics in regards to being your own boss. Today we are going to start off with the following: what does it mean when you get a 1099?
Let’s Start With The Basics If You Get A 1099
First and foremost, what is a 1099 Form? Basically the form 1099 is a way for our dear friends at the Internal Revenue Service to get an idea of how much freelancers/contractors are making that are not on someone’s payroll. Just as companies all over the nation submit W2’s to the IRS to tell them how much they paid John Smith in 2020 they are required to send 1099’s to the IRS letting them know that they also paid the non-employee Joe Schmoe for entertaining all of the W2 employees at the company’s annual Christmas party. Essentially people you perform services for will send you and the IRS a 1099 form at the beginning of the year (by January 31st) to get prepared for tax time.
What Are The Requirements To Receive A Form 1099?
Why should I tell you when we can get this information straight from the horse’s mouth? Directly on the IRS website they say the following are requirements in order to receive a tax form:
- You are paid at least $600 in:
- Services performed by someone who is not your employee
- Prizes and awards
- Other income payments
- Medical and health care payments
- Crop insurance proceeds
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish
- Payments to an attorney
- Any fishing boat proceeds
- Rents (you'll receive a 1099 for rent)
As freelancers in this gig economy a majority of the handful of readers who make it this far in this article will most likely fall under the second bullet point: services performed by you to someone who is not your employer. It also requires that the services be worth at least $600. So you can skirt off the IRS grid if you perform services once for each client valued at $599 and no more than $599. But since the majority of the world want to be heavily compensated for their services they are going to be stuck receiving a 1099. In addition, you can also see that this requirement applies to other industries as well. So before you decide to ditch the gig economy and join Forrest Gump to fulfill Bubba’s dying shrimp boating dreams just know that you’ll be slapped with a 1099 by the faithful Lieutenant Dan by January 31st of the following year. Either way, the best of luck to you sailor!
I Provided Service For Someone And Didn’t Receive A 1099: What Do I Do?
I’m going to let you in on a little secret. Not all companies/people file 1099’s like they should. I know, it’s shocking. Even though people and companies are required by law to file, sometimes they just don’t. Other times your 1099 could get lost in the mail. Regardless of what happened you still have to report your income if you didn't receive a 1099. You can simply contact the person in charge to request a 1099. If they don’t have the proper information for you they may ask for an updated W9 form that shows your address and social security number/EIN number. Usually that will resolve any missing 1099 dispute. If it doesn’t and you are feeling adventurous you can call the IRS, get put on hold, watch a movie on Netflix, grab a bite to eat, leave the country, come back, learn Italian, and then get connected to an agent to discuss your missing 1099 problem (full disclosure it could be a couple of hours, so don’t be scared to fire up Netflix). Regardless, it is important to get the issue squared away because the IRS will most likely catch a missing 1099-MISC.
What Other 1099 Forms Are There?
Great question! There are many types of 1099’s that you could catch looming inside of your mailbox or lurking in your email inbox. For freelancers the 1099-MISC is the most important and prominently used but you could also stumble across the occasional 1099-K. This form serves a similar purpose for the IRS – letting them know a little bit more about your money earning activities – but it will have a different treatment for you as a taxpayer. The form 1099-K basically lets the IRS know how much you received in electronic payments for the year, or usually your gross receipts/revenue number. Different websites have different criteria for issuing 1099-K’s but here is what one of the payment websites Stripe has to say about their 1099-K criteria:
Every year, the United States IRS requires that Stripe provide a form called a 1099-K for each Stripe account that meets all of the following criteria in the previous calendar year:
- Account is based in the United States (owners do not need to be US citizens) or the non-US account is for a US taxpayer
- More than $20,000 USD in total gross volume
- More than 200 charges
These are usually similar across the different providers, so if you meet the above criteria you will most likely see a 1099-K for the tax year. What do you do with it? Basically the most important thing is to match up your reported gross revenues on your 1099-K to what you will report on your tax return. If you report more revenue than what is shown on your 1099 that is acceptable as well, but if you report less than what the IRS sees on your 1099-K you will likely get a not-so-friendly notice in the mail. So do yourself a favor and make sure that you report at least whatever is reported to you on your 1099-K.
With this general knowledge of 1099’s and why they exist you should be able to understand your own tax situation a little more and avoid any potential IRS red flags. If you have additional questions I would encourage you to reach out to a tax professional to help you with whatever it is you need.