Some people confuse their W-2 with a 1099-MISC. Employees receive W-2 forms from their employers, but independent contractors receive 1099-MISC forms from individuals and businesses. While an independent contractor might assume he is an employee, unless the employer acknowledges him as an employer, he does not receive any of the benefits an employee receives. Regardless of the individual’s employment status, taxes are due on any money paid.
While an individual might consider himself to an employee, the Internal Revenue Service has a set of guidelines to determine the status of an individual’s employment. As a general rule, if the individual has the option to work with other clients and has control over his working conditions, he is an independent contractor.
The people for whom he provided work will send out a Form 1099-MISC to the individual, as well provides a copy to the IRS. On the other hand, if the individual is told not to work with other businesses or individuals and is also provided with a requirement for working conditions, such as hours when he works, that person might be considered an employee by the IRS. In that case, the individual should receive a W-2.
If an organization pays you less than $600 in a year as a contractor, it may not send you a 1099-MISC.
Understanding Your Filing Responsibilities
In the event the client does not file a 1099-MISC with the IRS, it is the responsibility of the contractor to report the income on his or her taxes. When an independent contractor files his tax return, he is required to provide copies of 1099-MISCs received. When an independent contractor files a tax return, he is required to pay all taxes on the money he earned, including a self-employment tax and Social Security and Medicare taxes.
If a 1099-MISC or other form is not received, you can contact the person who should send it to you and, if you haven't received it by the end of February, call the IRS for assistance in obtaining a copy. The IRS will send you information on how to handle the situation and reach out to the company for you.
Documentation of Taxes
Keep in mind it is important to file the paperwork on all taxes due, both to the federal government and to any state or local governments. In the event the client did not send a 1099-MISC, contact the individual or business and request a copy of the paperwork. If the contractor cannot get the paperwork, recreate the costs as best as possible. Provide a letter of explanation to the IRS, including documentation about attempts to get the 1099-MISC sent.
It's a good idea to keep records throughout the year of how and when you're paid, whether you're a full-time employee or a contractor, in case you have any dispute about what you should have made or what your tax forms should say.
Penalties for not Filing
If a person does not pay all taxes on time, the IRS, as well as state and local governments, assess penalties and interest. If the taxes do not get paid when due, additional penalties may accrue, as well as legal action, resulting in wage garnishment and property seizure.
- IRS.gov: Instructions for Form 1099-MISC
- IRS: Independent Contractor Defined
- IRS: General Instructions for Forms W-2 and W-3
- IRS: Topic Number 154 - Form W-2 and Form 1099-R (What to Do if Incorrect or Not Received)
- IRS. "Instructions for the Requester of Form W-9." Page 1. Accessed June 29, 2020.
- IRS. "Reporting Payments to Independent Contractors." Accessed June 20, 2020.
- IRS. "2020 Instructions for Forms 1099-MISC and 1099-NEC." Page 6. Accessed June 29, 2020.
- IRS. "Understanding Employee vs. Contractor Designation." Accessed June 29, 2020.
- IRS. "Independent Contractor (Self-Employed) or Employee?" Accessed June 30, 2020.
- IRS. "2020 Instructions for Forms 1099-MISC and 1099-NEC." Page 2. Accessed June 29, 2020.