If you’re a first-time independent contractor, you should find a 1099 form tucked into an envelope on your doorstep next February.
What’s a 1099?
1099s are your golden ticket to reporting income taxes as an independent contractor. These mandatory documents confirm exactly how much a company has paid you in the last tax year as a non-employee — they are the alternative to W-2 forms which organizations use to declare income for employees.
What Defines an Independent Contractor?
According to the IRS or Internal Revenue Service, you are eligible for a 1099 when you work as an independent contractor rather than a direct employee. As an independent contractor, you have the right to control what you work on and how it will be done. Your client can only “control or direct only the result of the work.” In the case of an Uber driver, this differentiation means that you decide when you hit the road, what car you drive, and who you pick up. Uber asks for a result — that you drive people from point A to point B — but leaves the rest up to you.
Here are some examples of independent contractors:
• Driver for Uber or Lyft
• Freelance graphic designer
• Airbnb host
• Self-employed landscaper
• Social media consultant
• General contractor
1099 Forms and Taxes
Anyone on the above list will receive at least one 1099 form every year. Here’s why: the government requires that organizations send their independent contractors 1099-MISC forms by January 31st, indicating the income paid to each contractor over the prior year. If a company has paid you less than $600 over the course of the year, they do not need to send you a 1099, but you still have to account for the income.
Because you are not an employee, the organization does not pay a percentage of your taxes — you need to pay it full. If you will owe over $1000 to the IRS for the current tax year, you also need to submit quarterly tax payments. Four times a year, estimate your tax liability based on the most recent quarter and use a 1040-ES form to make payments.
Check out Payable’s guide to Calculating and Paying Quarterly Taxes
Different Flavors of 1099s
Most organizations give contractors 1099-MISC forms, which cover miscellaneous services or consulting costs. 1099-MISC forms are the standard for independent contractors, with one exception. Contractors who work in the sharing or on-demand economy may receive a 1099-K instead. Uber and Lyft drivers should expect 1099-Ks — last year, both ride-sharing companies sent out these forms, based on the stipulation that they process “third party network payments” on your behalf.
The threshold for receiving a 1099-K is different from a 1099-MISC. Companies are required to send a 1099-K if you’ve earn over $20,000 and the process over 200 payments on your behalf.
Just like with a 1099-MISC, even if you don’t receive a 1099 form in the mail, you’re still on the hook for reporting that income to the IRS.
If you are an independent contractor and you haven’t received a 1099 by mid-February, give your client’s accountant a call. After all, you are your own boss — use that independence to your advantage by following up on your finances and getting ahead on your taxes!
Disclaimer: This article is meant as a guide and not professional tax or legal advice. Please seek a tax or legal professional if you are in need of professional advice.