Demystifying Form 1099: For Freelancers and Consultants

If you’re a gig worker, freelancer, or independent contractor, you’ve probably received IRS Form 1099.

What is it? Why did you receive it? What should you do with it?

What Is IRS Form 1099?

There are many types of 1099s. Instead of one tax form, it is a series of forms.

A 1099-MISC is a report of miscellaneous income (e.g., income from freelance or independent contractor services).

A 1099-INT is a report of interest income (e.g., income from a bank account).

A 1099-DIV is a report of dividend income (e.g., income from an investment portfolio).

A 1099-R is a report of retirement income (e.g., income distributions from a pension, annuity, or retirement plan).

In short, individuals use a 1099 tax form to report their income. It is a report of your earnings for the year. The type of earnings will determine which Form 1099 you receive.

Why Did I Receive a 1099?

If you are a freelancer, consultant, independent contractor, or self-employed, your income may come from a variety of sources. Therefore, you might receive multiple 1099s.

Any client or company that has paid you more than $600 will send you a Form 1099. If you received royalties or broker payments of at least $10, you may receive a 1099.

Similarly, if you are the employee of a company, your employer will send you Form W-2. A W-2 is a wage and tax statement. It is also a report of your earnings for the year.

The difference between a 1099 and a W-2 is that you will receive a W-2 if you are directly employed by a company. However, as a freelancer or gig worker, you will likely receive a 1099-MISC.

What Should I Do With a 1099?

When you receive your 1099, carefully review the form. Verify that your name, address, income, and taxpayer identification number (TIN) are correct. Verify that the client’s information is correct.

If you see any errors on the form, contact the client or company immediately. Notify them of the errors and ask them to issue a corrected 1099.

Save your 1099s with your tax records and use the documents when you prepare and file your taxes. On your tax return, you will need to report the income for each 1099 separately and, if necessary, pay any taxes owed.

What if I Don’t Receive a 1099?

Even if you do not receive a 1099, it is your responsibility to report all earned income. Not all clients will send you a 1099, although you may have earned more than $600 with them.

Throughout the year, keep track of your earned income and business expenses.

Use your records (e.g., invoices, payment receipts, expense receipts) to calculate your income and report it accordingly. Good records will also help you identify tax deductions and reduce your tax burden.

If you receive a 1099, the Internal Revenue Service (IRS) is aware of the income. Failing to report your income may result in tax penalties, interest charges, fines, or tax liens.

What if I Have Questions About My 1099?

Understanding Form 1099 is integral to managing your finances and taxes. If you have questions about your 1099, or how to report your income on your tax return, consult a tax professional.

Tax preparation services and accounting firms often offer assistance for free or for an additional fee.

If you use tax software to guide you through the tax preparation process, contact the software provider and request advice tailored to your specific situation.

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