What is a 1099-MISC?
Any time you receive payment for goods or services you’ve provided to a company, you’ll receive a record of that payment at the end of the year (as long as your payment meets a certain minimum, discussed below). These forms are called information returns, and there are several different kinds that each report a different kind of income; W-2s and 1099-MISCs, and SSAs are just a few of them.
If you’ve ever been an employee of a company, either part-time or full-time, you’ve probably received a W-2 before. As an independent contractor, you’ll receive a form that looks pretty similar to a W-2, but contains some important differences: the 1099-MISC.
How it works
A 1099-MISC is typically sent to you by January 31st if you’ve earned $600 or more in compensation. A copy is also sent to the IRS by January 31st. Tip: Even if you don’t make enough money to receive a 1099-MISC, you still have to report that income to the IRS!
You receive a 1099-MISC for a few reasons. For one, the company that you’ve done independent work for needs to report how much they’ve paid in compensation throughout the tax year. Second, you need to know how much income you’ve received from that company so that you pay the correct amount in taxes.
What to do with your 1099-MISC
You’ll report this income just as you would a W-2, or any other form of income. But here’s the catch: If you received a 1099-MISC, then you’re receiving compensation as a non-employee. That means the company that you’ve done work for has not withheld taxes from your compensation, and that you need to pay taxes on this income.
Even though you need to pay taxes on this income, you’re allowed many tax write offs as a non-employee for expenses that are related to your business. This means you can deduct expenses like mileage, your home office if you work from home, and many more. You’ll itemize and report these expenses on a key form for contractors: the Schedule C.
If you use a tax filing software this tax season (like TurboTax or TaxAct) you’ll report that you received a 1099-MISC, and your income tax liability and self-employment taxes will be calculated for you. If you use a tax preparer, they’ll know to calculate the taxes that you owe on this income.
If you received a 1099-K
Different form, same answer. You’ll still pay the same tax rate on income reported on a 1099-K, even though it’s classified a bit differently. The 1099-K is pretty similar to the 1099-MISC, except it’s usually used to report payment that comes from electronic payments and third-party network transactions. Uber uses 1099-Ks to report the fares that you receive, because Uber acts as a third-party connector between you and your passengers. Uber will report your fares on the 1099-K, and promotions, bonuses, incentives, and reimbursements on a 1099-MISC.
One huge difference is that the 1099-K reports gross earnings, which often includes commissions that a company or service takes out. For example, Uber uses 1099-K’s and will report the total amount a passenger paid--including the commission that Uber took.
Why do they report gross? They’re required to by the IRS. But don’t worry, you won’t pay taxes on Uber’s commission! Here’s how to remove Uber’s commission when filing your taxes.
Tade Anzalone heads up Stride’s tax and finance support and is a registered tax return preparer and 2017 Annual Filing Season Program Participant. In addition to her years of experience helping people navigate complicated finance and tax obligations, she has degrees in Government, Psychology, and Spanish from Georgetown University.
Disclaimer: The information contained in this Guide is not offered as legal or tax advice. The U.S. federal income tax discussion included in this Guide is for general information purposes only and is not a complete analysis or discussion of all potential tax consequences that may be relevant to a particular individual. In light of the foregoing, each individual should consult with and seek advice from such individual’s own tax advisor with respect to the tax consequences discussed herein. Any information contained in this Guide is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the U.S. Internal Revenue Code of 1986, as amended.