This post was originally published on Feb. 5, 2015, and was updated on April 2, 2018, March 27, 2019, and Feb. 5, 2020.
This content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
If you’ve worked as an independent contractor during 2019, a Form 1099-MISC should have landed in your mailbox or inbox around the end of January. The 1099-MISC, Miscellaneous Income, is an informational form that U.S. businesses are required to send to people they paid more than $600 for services during the last calendar year.
- You do not necessarily have to have a business for payments for your services to be reported on Form 1099-MISC. You may simply perform services as a non-employee.
- The payer has determined that an employer-employee relationship does not exist in your case. You can learn more about that here.
We recently wrote about Form 1099-MISC from the business owner’s perspective, but what do you do if you’re one of those independent contractors who gets the form?
Related: 7 tax tips for your side hustle
Compare it with your own books
The very first thing you want to do when you receive Form 1099-MISC is to look at the total in Box 7 - Nonemployee Compensation and determine whether it matches your financial records.
Why is it so important to confirm that your 1099-MISC is correct? The IRS gets a copy of it, too. That means it has tax implications for you.
If you use GoDaddy Online Bookkeeping, simply follow these steps to compare your records with the total in Box 7 of the 1099-MISC:
- From your dashboard, go to your Income tab.
- Choose the dates you wish to see. For tax year 2019, that would be Jan. 1, 2019, to Dec. 31, 2019.
- Filter by entering your client’s name in the Name search field.
- Click Filter.
GoDaddy Online Bookkeeping will show you all the income you received from that client.
What if your Form 1099-MISC is wrong?
Let’s say your client paid you $1,000 to design a logo, but they accidentally double reported that amount and told the IRS they paid you $2,000. As far as the IRS is concerned, you made that $2,000 in income and now owe income tax on it. Ouch!
If you find that your 1099-MISC is incorrect, contact the company that issued it ASAP.
If the company has already filed the erroneous 1099-MISC with the IRS, then it will take more effort on their part to correct the error, but most reputable companies are scrupulous about their bookkeeping and will help you out.
If you can’t get your form changed by the company that issued it, just be sure your own financial records back up your story.
According to Maurie Blackman over at The Motley Fool, if you can’t get your client to change the 1099-MISC, attach a statement to your tax filing explaining the discrepancy. Be sure to include “documentation in support of your claim, such as copies of canceled checks and invoices. You should also include proof that you attempted to reach the issuer, and that the issuer either failed to respond or refused to comply.”
Sure this sounds like a hassle, but it could save you the much deeper pain of overpaying your income taxes.
What if you don’t receive Form 1099-MISC?
Maybe you think you should receive a Form 1099-MISC from a client, but you never get one.
As an entrepreneur, it seems like you have to cross every “t” and dot every “i” yourself. But in this case, you’re actually not obligated to do anything. This was your client’s obligation, and if they fail to send you a Form 1099-MISC they can face stiff penalties.
That said, just because you didn’t receive a tax form doesn’t mean that your income from that client isn’t taxable.
Report all of your income on your Schedule C whether your clients fulfill their reporting obligations or not.
When it comes to taxes, it’s always better to be safe than sorry.
Related: When are business taxes due?
The future of form 1099-MISC
Starting next year, in tax year 2020, contractors will receive form 1099-NEC (non-employee compensation) rather than form 1099-MISC.
The 1099-NEC was discontinued by the IRS in 1982, but has been reinstated due to some changes to tax form due dates mandated by the Protect Americans from Tax Hikes (PATH) Act of 2015. So don’t be surprised if you see a new tax form in your mailbox or inbox in January of 2021!