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 the event the client does not file a 1099-MISC with the IRS, it is the responsibility of the contractor to do so. 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.
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.
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.