Raise your hand if you're anything like me and tax time kind of overwhelms you. Everyone? OK, great. Since we're all in this together, let's talk about one of the questions that defines tax time for freelancers: What is a 1099? If you've recently switched from salaried to freelance employment — or perhaps you're salaried and have decided to take on some freelance work — this form may be wholly unfamiliar to you. However, it's pretty crucial if you want to get all the monies, y'all.
To start with the basics, corporations, small businesses, and other employers in the United States rely on tax forms to record the income their employees earn throughout the year. The 1099 form is the Internal Revenue Services form used specifically by non-salaried employees such as freelancers, consultants, and other independent contractors to report any earnings that are not salaried income. Of course, this category of people spans a wide spectrum, from writers like myself to actors, artists, designers, and many more. Creatives often fall under this umbrella, though, as companies opt to pay them on a per-job or contract basis — plus, we like working in PJs.
Sound like you? Here are a few other key things to know about the 1099 before you file your taxes.
When Should You Receive Your 1099?
The person or entity who pays you is responsible for filling out the 1099 tax form that pertains to you and mailing it to you by Jan. 31. So, for example, I am an independent contractor and earned at least $600 from one of my clients during the tax year. Accordingly, I received a 1099 from that client in early January, which I'll bring when I visit the tax preparer (while visions of a hefty tax return dance in my head). If you do not get a 1099 form from a client or income provider — either because they paid you less than $600 or they simply didn't file — you are still required to report that income and pay taxes on it.
What Types Of 1099s Are There?
There are actually many different types of Form 1099. Depending on the source of income you earn, your income provider will send you and the IRS a specific 1099 form. Some common examples are the 1099-B to report earnings from the sale of securities, the 1099-INT to report interest income, and the 1099-MISC to report income earned as a freelancer or independent contractor — the latter of which likely concerns you, if you're reading this.
What's The Difference Between A 1099 And A W-2?
The tax form you may be more familiar with, if you have ever been a salaried employee, is the W-2. Typically, salaried employees receive a W-2 form before tax time which lists the income they received from that employer during the year. This form also contains deductions taken from the income, such as state and federal taxes. Unlike a W-2, though, the 1099 tax form does not include deductions because no income reported on the 1099 is withheld.
What's The Importance Of The 1099?
If you rely solely on freelancing for your income, it's unlikely the importance of the form standing between you and a tax return will slip your mind. However, if you do forget to include any 1099 forms in your tax return, the IRS will notify you and retroactively charge you penalties and interest. If you realize your error before the IRS does, you can file an amended tax return on Form 1040X.