There's a lot of talk about 1099s in the news lately, but it may be hard to keep track of when exactly they're due and what you should do with them. With that in mind, here's a quick breakdown of some key information related to 1099 taxes for the year 2022.
According to Uncle Sam, any self-employed individual who works as an independent contractor or a freelancer is considered a 1099 employee and is required to file 1099 taxes with their annual tax return.
1099 is basically a tax form that reports income categorized as non-employee compensation. If you are self-employed and/or receive more than $600 in any given year, then you will have to file one. There are various types of 1099s, but the most common are 1099-MISC and 1099-INT. You will also have to file 1099 if you receive rental income from real estate investment companies or if you sell stocks or bonds.
In other words, the IRS 1099 form is a document you receive from any company that pays you more than $600 in a year. It lists all the payments, their date, and the amount of each payment. If you received this document, it's important to file it with your annual tax return (and pay the tax if applicable).
There are several types of 1099 forms that are used to report different sources of income. This can include anything from unemployment benefits to interest income.
Some common 1099 forms include:
Form 1099-NEC (Non-employee Compensation) is meant for freelancers or independent contractors. The form details the income received for services you performed for someone who isn’t your employer. So, if you’re self-employed, you will likely receive this form from anyone you’ve done work for.
The form is meant to report any interest income of at least $10 received during the year.
It is used for reporting dividend income, from a stock or mutual fund.
The 1099-G form is meant for reporting any income you received from any government payments, like unemployment benefits.
Form 1099-MISC is used for reporting miscellaneous income, like rent award winnings, or legal settlements.
Here, you can report any payments you received via credit card or a third-party transaction platform (like Paypal). However, you’ll only receive the form if you were paid more than $20,000 or you received more than 200 payments.
The 1099-R form is meant for distributions you received from retirement plans, pensions, IRAs, annuities, and profit-sharing programs.
A 1099 form is quite different from a W-2 form. If your employer or client sends you a self-employed 1099 form, it’s a sign that they see you as an independent contractor rather than an employee. Whereas W2-form is meant for ‘employees’ who have their taxes withheld when they get paid.
Generally, freelancers or 1099 self-employed individuals have to pay Self-employment taxes to the state and federal government.
1099s are generally mailed on the 10th or 20th of the month. If an employer has a small number of employees, they can elect to mail out 1099s as late as October 31st. For companies with larger numbers of employees, this date may be pushed back to December 31st.
The due date for 1099s is January 31st of the year following- the year in which you pay an independent contractor. So, if you paid a contractor before November 30th, 2022, you must submit your 1099 on or before January 31st, 2023.
Tax season starts in January and ends on April 16th. The IRS usually starts processing tax returns starting the end of February, requiring them to file their taxes by April 15th.
The 1099 form is due at the same time as the W2 or other income tax forms.
If you run a business and hired an independent contractor to whom you paid $600 or more during a tax year, then you must send Form 1099 to that individual. Similarly, you should send a 1099-NEC form to those businesses or independent contractors who you'd paid over $600 in the form of fees, commissions, prizes, awards, or other forms of compensation for services performed for your business.
You must complete Form 1099-NEC, send all copies to the IRS by 31st January and send another copy to the freelance contractor.
Failure to issue the 1099-NEC form by the deadline can lead to a penalty. The amount of the penalty varies from $50 to $270 per form, depending on how late the business issued the form.
Note: If a business intentionally disregards the requirement to provide a correct payee statement, the minimum penalty it's subjected to is $550 per form or 10% of the income reported on the form.
In case you receive a Form 1099-NEC that reports your non-employee compensation and refuse to include it on your tax return, you may be subjected to a heavy penalty.
Failing to report any income can cause your return to understate your tax liability. This can lead to an accuracy-related penalty that’s equal to 20% of your underpayment. For example, if the failure to include your freelancing income caused you to understate your tax liability by $4,500 your penalty would be $900 ($3,000 x .20 = $900). To avoid penalties, use the 1099 tax calculator.
If you received the 1099-NEC form for non-employee compensation, you'll have to complete Schedule C and Profit or Loss From Business, and then finally transfer the net earnings to Form 1040. Similarly, for other 1099s, you need to report the income on different pages of Form 1040.
For example, Income on a 1099-INT must be reported on the first page of your tax return, Form 1040.
As a freelancer, keeping a track of your 1099 income is a necessity, but with constant hustle and bustle, it can get difficult to keep a check on your freelance income. You can make use of our expenses tracking app- FlyFin so that you have accurate records of your expenses in January when the form needs to be filed.
Moreover, the 1099 tax calculator can help you figure out your 1099 tax liability. The 1099 tax calculator is powered by A.I. and helps you track your expenses. It automatically finds all tax deductions related to your profession. The entire process takes five minutes at max. Moreover, you get to consult a CPA to prepare your quarterly taxes for free.
FlyFin CPA Team
With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.