Most individuals who earn income must file an income tax return with the Internal Revenue Service. Employers report your income throughout the year to the IRS using specific forms. If you earn income as an independent contractor or non-employee, the provider of your wages must report your income using Form 1099.
About Form 1099
Employers use Form 1099 to report income they pay to independent contractors, such as performers, guest lecturers, physicians or lawyers. Form 1099 can also report rent or royalty payments. Employers and other wage providers must mail copies of Form 1099 to the IRS and the wage recipients for the previous year by Feb. 15. Most employers of independent contractors don't withhold income tax, so Form 1099 recipients must pay quarterly or pay their entire tax liability at the end of the tax year.
Employers and wage providers must file Form 1099 for each individual to whom they pay more than $600 for services, rents or other non-employee activities. Individuals or companies must also file Form 1099 when they pay more than $600 to a lawyer in gross proceeds, or if they pay an individual more than $10 in royalties. Finally, individuals or companies must file Form 1099 if they sell more than $5,000 of merchandise to a buyer for resale in a non-permanent retail location.
Payments that aren't reportable on Form 1099 regardless of the amount include most payments to corporations, rent payments to real estate agents, payments for merchandise or storage, wages paid to employees, differential wages paid to members of the military, business travel allowances, payments to tax-exempt organizations and merchant/payee credit card payment transactions. Payments made with a credit card or other payment card that don't qualify as merchant/payee transactions are reportable on Form 1099-K.
An employer or other wage provider who fails to file Form 1099 for a recipient who earned more than the filing requirement may incur a penalty if he can't show good cause. If he files within 30 days of the due date, he may owe a penalty of $30 per information return. If he files more than 30 days after the due date but before Aug. 1, he may owe a penalty of $60 per information return. If he doesn't file by Aug. 1, he may owe a penalty of $100 per information return.
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