Does receiving 1099 MISC Tax Form Force a contractor to file taxes? Are you an individual/business owner? Did you perform services on the course of business or trade? Then you are considered as a 1099 independent contractor. According to the IRS, contractors who receive 1099 income must report it on Form 1040. Otherwise, the IRS subjects the contractor to pay penalties that are heavy and hefty.
Getting confused? Don’t worry! We will let you know does receive a 1099 MISC Form forces a contractor to file taxes. We also provide you information about when a contractor must include 1099 income on the tax return form.
When does a contractor must include 1099 income on the tax return?
As we know earlier, the gig economy has increased rapidly. The business started hiring a contractor instead of employees. Due to
this, the common misconception among workers has also grown. If your pay is reported on a 1099 Tax Return, then you are not an employee. Hence, you are treated as a “Contractor”. As a general rule, when you receive a 1099 MISC for receiving miscellaneous income, you are an independent contractor providing services. That means you need to report all the 1099 income and relevant expenses on “Form 1040”.
What is the minimum income from 1099 to file taxes?
According to the IRS, a contractor receives Form 1099 MISC when the payments made exceed the $600 reporting threshold. Due to this most contractors think that there is no need to report the income received below the reporting threshold. Self-employed individuals must report the self-employment income received from all the taxable sources totals $400 or more.
For example, if a business paid you $600 as rent in a calendar year. Then the business owner issues a 1099 MISC to you and to the IRS reporting the contractor income. As a contractor, you are responsible to report the income received apart from regular salary to the IRS on an income tax form. Suppose, if you earn $400 throughout the tax period, then you must include $400 when filing tax returns.
What happens if you get a 1099 and don’t file taxes?
According to the IRS, business owners must report the income paid to the contractors on the respective 1099 Tax Form. Contractors must report the income received on their tax returns annually to the IRS. If you get a 1099 MISC Form at the year-end and failed to include it on your tax return, the IRS penalizes you. The IRS instructs the taxpayers to start withholding taxes from the income.
The withholding taxes will be nearly 24% form your income. Because the IRS also receives the information returns from the taxpayer who paid 1099 income. If you intentionally don’t include 1099 income on the tax return, it is treated as underreported income. So, the IRS computers match the information provided on 1099 MISC with your tax returns and imposes penalties.
What if I received a 1099 MISC but I am not self-employed?
If you are considered as an independent contractor, then you will get 1099 MISC if the payments made are for rent, royalties, prizes or rewards etc. For self-employed individuals, there will be Social Security and Medical payment taxes on the 1099 income earned. When you earn non-employee compensation reported on 1099 NEC, the IRS treats it as self-employment income.
Hence, you may end up paying Social Security and Medicare taxes. So, if you receive 1099 MISC reporting amounts in box 1 or 3, you don’t have to worry about the self-employment taxes. Because the rent goes on Schedule E and the other income on line 21 of Form 1040.
Does the IRS check every 1099 income?
Yes, the IRS checks every 1099 income reported on the contractor’s tax return or not. Otherwise, the IRS considers the income not reported on the tax return as “underreported income”. Hence, sends a B notice to the taxpayer and the taxpayer must start backup withholding taxes from their income. Moreover, to avoid the penalties and fines it’s better to report the 1099 income on the tax return form annually.
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