A 1099-MISC is the form on which employers report payments made to self-employed contractors. It’s similar to a W2, but for independent contractors. They report the total amount paid to you without taking taxes out. According to IRS rules, an employer must send a 1099 for every contractor paid $600 or more during the previous tax year.
Important Payment Boxes
The most vital box to check when you receive a 1099-MISC is box 7, where the amount of nonemployee compensation you earned is listed. Additionally, you may have royalty income reported in box 2. Box 3 is for other income, such as payments made for prize winnings greater $600. Box 1 is for rents paid to you for office space, machinery or farmland, and box 5 solely covers proceeds you earned for the sale of fish if that’s your job.
The IRS is Watching
The primary role of the 1099-MISC is to keep the IRS apprised of self-employed workers who otherwise may try to skip paying taxes. The form only is used for employees who provided services for a business, not for personal services like painting a house. As the independent contractor, you should receive your 1099 forms by Jan. 31. Employers must file a copy with the IRS of each 1099 they send by Feb. 28, or March 31 if taxes are filed electronically.
In addition to the income on the 1099, you’ll want to make sure the payer’s name and address are correct – that it is an employer for whom you worked in the previous year, and that you indeed did make $600 or more. The payer’s employer identification number and your Social Security number or EIN will be listed on the form above your name and address and should be checked for accuracy.
Errors Can be Corrected
Errors on a 1099-MISC form can be corrected. If, for example, the amount of nonemployee compensation is box 7 is incorrect, you can contact the payer and request a corrected form. If you can’t get that, then you can attach a statement to the form when file your own taxes. Each 1099 that you receive must be included in your own taxes. The total is used to calculate your own federal and state taxes as well as social security. Boxes 4 and 17 rarely are filled out on contractors’ 1099 forms, but withholding taxes may be taken out of your final pay if you don’t supply the payers with a completed W9 form.