Do I Need to File Taxes With a 1099?
Internal Revenue Service Form 1099 is used to report income other than wages, salaries, and tips. Any business or company that pays more than $600 during a tax year to an individual contractor is required to issue a 1099 declaring the total amount paid. Any contractor who receives a 1099 and earned at least $400 through self-employment is required to report it for tax purposes.
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Income
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Long ago, the IRS realized there was a lot of income being generated in the American economy that remained undocumented on W-2 forms, which meant the government was missing out on a chunk of tax revenue. Enter the 1099 form. Now almost any money earned can be easily captured and reported. Self-employment income from a 1099 is normally recorded on a Form SE and sometimes Schedule C attachment to your 1040 tax filing document.
Self-Employment Taxes
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Employees who receive a W-2 form have already had Social Security and Medicare taxes deducted under FICA. Since there is no mechanism in place to harvest these taxes from the self-employed, the government must get its due at tax time. There are two criteria to determine whether you owe self-employment tax. If you earned more than $400 in self employment income you must file and pay the tax. You also should file and pay if you're a church employee who earned more than $108.28.
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Federal Income Tax
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Self-employed individuals use the information from the 1099 form to determine how much they owe in federal income tax. To do this requires Form SE, which should be filled out and attached to your 1040 form. It's not uncommon for self-employment to generate business related tax deductions, which reduces the amount of federal income tax paid, but the IRS still expects you to report and pay the appropriate amount on any profit.
State Income Tax
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If you receive a 1099 form from a business, there should be three copies. One is used to file your federal income taxes, one to file state income taxes, and one to keep for your records. The same rules apply for states. If you earned more than $400 through self-employment, you should file out the designated form for your state to determine how much state income tax is owed.
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