You’re retired, receiving Social Security Income (SSI), and suddenly you receive a 1099 MISC tax form in the mail with your name on it showing an amount of money paid to you. Is this form going to automatically invalidate your current SSI benefits? How does it get treated under earned income limitations? Will you be penalized? These are all good questions for a retiree in the above situation to ask. Fortunately, the information is readily available.
The 1099 MISC Form
A 1099 MISC is a tax form created and distributed by the U.S. Internal Revenue Service (IRS) to capture income paid that would normally not be seen on a W-2 form via a regular paycheck. There are multiple versions of the 1099 for different scenarios. The 1099 MISC is a catch-all form for any income outside of a paycheck. It can be used to report salary, fees earned, royalties or payments, and even settlements. The form is frequently used to record payments to consultants and freelance services.
The Minimum Reporting Amount
A 1099 MISC is required to be prepared and mailed by a business making a payment to someone that exceeds $600 in one calendar year. This can include the aggregate of multiple payments; it does not need to be just one big payment over $600. Royalties, on the other hand, get more scrutiny, and the form is required for aggregate payments over $10. This should not be confused with a monetary gift, which the IRS treats differently.
It's Extra Money, Right?
Too often, many who receive a 1099 MISC received funds they think are above and beyond their normal income. The IRS doesn’t care that it wasn’t paid via a regular paycheck; any income received in a calendar year has to be reported for tax purposes. This requirement applies even if you don’t receive a 1099 MISC due to not being paid over $600 or the payer forgets.
Earned Income Defined
Earned income is money you receive for work you perform. So, if you receive a 1099 MISC for non-employee work or service compensation, then it is considered self-employment income and also earned income for the purposes of SSI calculations. Passive income 1099 reports, which are not compensation for work, are not considered earned income.
Working and Receiving Benefits
If you are bringing in earned income from working while also receiving SSI benefits, there are a couple of points to consider. First, it is still allowed to have both simultaneously; however, there is a depreciating benefit that occurs the more money you earn. Technically, if you are receiving SSI benefits early, i.e. before age 65 or 67 for most people today, then your SSI benefits will be reduced accordingly, depending on how much you earn in the same calendar year. The reduction is actually a deferral; you see the funds again later when you reach full retirement age per SSI.
The actual dollar impact will vary depending on how much your earned income exceeds the limit allowed ($14,160 for 2009). The reduction will generally equal $1 for every $2 earned until the monthly SSI benefit is reduced completely. As a result, it is critical to make sure income received is truly earned income. Passive income can still be received in full without any impact to your SSI benefits.
Save Your Documentation to Explain Your Interpretation
If you get a 1099 MISC and you believe it is passive income rather than earned, make sure to save all relevant documentation you have to prove your case. This will be handy when explaining your income to the SSI administrator. Again, there is nothing wrong with having additional income when receiving SSI benefits, as long as you don’t exceed earned income limitations annually.
- “What Do I Do With This 1099-MISC?” Anne Lane, AllLaw.com, 2009.
- "How Work Affects Your Benefits," SSA Publication No. 05-10069, January 2009, ICN 467005.
- Internal Revenue Service. "About Form 1099-MISC." Accessed Jan. 15, 2020.
- Internal Revenue Service. "Am I Required to File a Form 1099 or Other Information Return?" Accessed Jan. 15, 2020.
- Internal Revenue Service. "2019 Instructions for Form 1099-MISC," Page 1. Accessed Jan. 15, 2020.
- Internal revenue Service. "2019 Form 1099-MISC," Pages 1–2. Accessed Jan. 15, 2020.
- Internal revenue Service. "2019 Form 1099-MISC," Pages 1–7. Accessed Jan. 15, 2020.
- Internal Revenue Service. "Form 1099-MISC." Accessed Jan. 29, 2020.
- Internal Revenue Service. "Instructions for Forms 1099-MISC and 1099-NEC (2020)." Accessed Jan. 15, 2020.
- Internal Revenue Service. "2019 General Instructions for Certain Information Returns," Pages 25–27. Accessed Jan. 15, 2020.
Since 2009 Tom Lutzenberger has written for various websites, covering topics ranging from finance to automotive history. Lutzenberger works in public finance and policy and consults on a variety of analytical services. His education includes a Bachelor of Arts in English and political science from Saint Mary's College and a Master of Business Administration in finance and marketing from California State University, Sacramento.