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4.3 Interest/Dividends/Other Types of Income: 1099–MISC, Independent Contractors, and Self-employed
I received a Form 1099-MISC instead of a Form W-2. I'm not self-employed,
I do not have a business. How do I report this income?
If payment for services you provided is listed in box 7 of Form 1099-MISC,
you are being treated as a self-employed worker, also referred to as an independent
contractor. You do not necessarily have to "have a business," but simply perform
services as a nonemployee to have your compensation treated this way. The
payer has determined that an employer-employee relationship does not exist
in your case. That determination is complex, but is essentially made by examining
the right to control how, when, and where you perform those services. It is
not based on how you are paid, how often you are paid, nor whether you work
part-time or full-time. There is no statutory definition of an employee, but
from common law three basic areas have been identified:
behavioral control,
financial control, and
type of relationship.
For more information on employer-employee relationships, refer to Chapter
2 of Publication 15-A (PDF), Employer's Supplemental
Tax Guide. If you think that you were, or are, an employee and you would
like the IRS to issue a determination, you may submit Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment
Taxes and Income Tax Withholding.
Unless you have requested a determination by filing Form SS-8, you generally
have to report your nonemployee compensation on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship),
or Form 1040, Schedule C-EZ (PDF), Net Profit
from Business. You also need to complete Form 1040, Schedule SE (PDF), Self-Employment Tax, and pay self-employment
tax on your net earnings from self-employment, if you had net earnings from
self-employment of $400 or more. This is the manner by which self-employed
persons pay into the social security and Medicare trust funds. Employees pay
these payroll taxes, as well as income tax withholding, through deductions
from their paychecks. Generally, there are no tax withholdings on this income.
Thus, you may have been subject to the requirement to make quarterly estimated
tax payments. If you did not make estimated tax payments, you may be charged
an underpayment of estimated tax penalty.
References:
I thought I was an employee and thought my employer was withholding
tax from my pay. My former employer sent me a Form 1099-MISC and didn't withhold
any taxes. Is there a procedure to have the situation reviewed and possibly
make the former employer pay the taxes due? What can I do?
You can ask the IRS to make a determination as to whether an employer-employee
relationship exists by filing Form SS-8 (PDF), Determination
of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
If the IRS finds that an employer incorrectly treated an employee as a nonemployee,
the employer will be liable for the social security and Medicare tax withholding
that he or she failed to withhold and pay. (There are some exceptions to this
noted in Publication 15-A (PDF), Employer's
Supplemental Tax Guide).
Holding the employer liable for the tax that was not withheld does not
relieve you from the liability for your share of social security and Medicare
taxes. To pay your portion, attach Form 4137 (PDF), Social
Security and Medicare Tax on Unreported Tip Income, to your individual
income tax return and report the employee share of social security and Medicare
on page 2 of Form 1040. Cross out the word "Tip" and insert the word "Wages"
at the top of the Form 4137 and also at the top of Schedule U, U.S. Schedule
of Unreported Tip Income, which is attached to the bottom of Form 4137. Also
notate on the Form 4137 that a Form SS-8 has been filed. You may call us at
1 800-829-1040, the toll-free information number if further clarification
of the procedure is necessary.
References:
- Publication 15, Circular E, Employer's Tax Guide
- Publication 15-A (PDF), Employer's
Supplemental Tax Guide
- Form 4137 (PDF), Social Security
and Medicare Tax on Unreported Tip Income
- Form SS-8 (PDF), Determination
of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
- Tax Topic 762, Independent contractor vs. employee
The instructions for Form 1099-MISC, Box 7, say if you are not self-employed,
call the IRS for information about how to report any social security and Medicare
taxes. I need to know how do I report social security and Medicare taxes if
I received income reported on a Form 1099-MISC, but was not self-employed?
You need to use Form 4137 (PDF), Social
Security and Medicare Tax on Unreported Tip Income. Cross out the word
"Tip" and insert the word "Wages" at the top of the form and also at the top
of Schedule U, which is attached to the bottom of the form. Follow the instructions
on Form 4137 to compute your share of your social security and Medicare taxes.
Attach Form 4137 to your Form 1040. You may call us at 1 800-829-1040 if further
clarification of the procedures is necessary.
You may want to file Form SS-8 (PDF), Determination
of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
This form requests the IRS to make an official determination of whether or
not you were an employee. To make this determination, the IRS will need information
from you and your employer.
References:
- Form 4137 (PDF), Social Security and Medicare
Tax on Unreported Tip Income
- Form SS-8 (PDF), Determination of Worker
Status for Purposes of Federal Employment Taxes and Income Tax Withholding
I received a Form 1099-MISC for an employee bonus. How do I report
it?
Employee bonuses should be reported on Form W-2, not on Form 1099-MISC.
Contact your employer and ask them to issue the correct form. If they will
not issue you a Form W-2 for the bonus, complete Form 4852 (PDF), Substitute for Form W-2, Wage and Tax Statement. The
bonus amount is reported on Line 7 on your Form 1040 or 1040A or line 1 of Form 1040EZ (PDF).
References:
I am self-employed. How do I report my income and how do I pay Medicare
and social security taxes?
You are a sole proprietor if you are the sole owner of a business that
is not a corporation. Report your income and expenses from your sole proprietorship
on Form 1040, Schedule C (PDF), Profit or
Loss from Business (Sole Proprietorship), or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.
If the total of your net profit from all businesses is $400 or more, you
must pay into the Social Security and Medicare systems by filing Form 1040, Schedule SE (PDF), Self-Employment Tax.
Self-Employment tax consists of the Old-Age, Survivors, and Disability Insurance
(social security) and the Hospital Insurance (Medicare) taxes. For more information
on this, refer to Publication 533, Self-Employment Tax.
The Federal tax system is based on a pay-as-you-go plan. Tax is generally
withheld from your wages or salary before you get it. However, tax is generally
not withheld from self-employment income. Thus, you may be required to make
estimated tax payments. Publication 505, Tax Withholding and Estimated
Tax, provides information on making estimated tax payments.
References:
My son is a newspaper carrier. I would like to know if this income
is subject to Social Security and Medicare tax and if I must file a Schedule
C for him?
Your son may be liable to pay into the Social Security and Medicare system
by paying self-employment tax. However, if your son is under the age of 18
he exempt from self-employment tax. Persons engaged in the trade or business
of delivering or distributing newspapers or shopping news (including any services
directly related to such delivery or distribution) are considered by statute
as nonemployees and are treated as self-employed for all Federal tax purposes,
including income and employment taxes.
Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship) ,
or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business . See Form 1040, Schedule SE (PDF), Self-Employment
Tax , which must be filed if net earnings from self-employment are $400
or more. If your child is a newspaper carrier under the age of 18, he is exempted
from self-employment tax.
References:
What is the difference between a Form W-2 and a Form 1099-MISC?
Both of these forms are called information returns. The Form W-2 is used
by employers to report wages, tips and other compensation paid to an employee.
The form also reports the employee's income tax and Social Security and Medicare
taxes withheld and any advanced earned income credit payments. The Form W-2
is provided by the employer to the employee and the Social Security Administration.
A Form 1099-MISC is used by a person engaged in a trade or business to report
payments made in the course of such trade or business to another person or
business who is not an employee. The form is required when payments of $10
or more in gross royalties or $600 or more in rents or services are paid.
The form is provided by the payor to the IRS and the person or business that
received the payment.
References:
How do you determine if a person is an employee or an independent
contractor?
The determination is complex, but is essentially made by examining the
right to control how, when, and where the person performs services. It is
not based on how the person is paid, how often the person is paid, nor whether
the person works work part-time or full-time. There is no statutory definition
of what an employee is, but from common law three basic areas have been identified:
behavioral control,
financial control, and
type of relationship.
For more information on employer-employee relationships, refer to Chapter
2 of Publication 15-A (PDF), Employer's Supplemental
Tax Guide. If you would like the IRS to determine whether services are
performed as an employee or independent contractor, you may submit Form SS-8 (PDF), Determination of Worker Status for Purposes
of Federal Employment Taxes and Income Tax Withholding.
Unless you have requested a determination by filing Form SS-8, you generally
have to report your nonemployee compensation on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship),
or Form 1040, Schedule C-EZ (PDF), Net Profit
from Business. You also need to complete Form 1040, Schedule SE (PDF), Self-Employment Tax, and pay self-employment
tax on your net earnings from self-employment, if you had net earnings from
self-employment of $400 or more. This is the method by which self-employed
persons pay into the social security and Medicare trust funds. Generally,
there are no tax withholdings on this income. Thus, you may have been subject
to the requirement to make quarterly estimated tax payments. If you did not
make timely estimated tax payments, you may be assessed a penalty for an underpayment
of estimated tax. Employees pay into the social security and Medicare trust
funds, as well as income tax withholding, through payroll deductions.
References:
I received a Form 1099-MISC with an amount in box 7, (nonemployee
compensation). What forms and schedules should be used to report income earned
as an independent contractor?
Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship),
or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business (Sole Proprietorship). You should also be aware
of Form 1040, Schedule SE (PDF), Self-Employment
Tax, which must be filed if net earnings from self-employment are $400
or more. This form is used to figure your social security and Medicare tax
which is based on your net self-employment income. You may also need to file
Form 2210, Underpayment of Estimated Tax by Individuals, Estates & Trusts,
if you do not make estimated tax payments.
References:
- Form 1040, Schedule C (PDF), Profit
or Loss from Business (Sole Proprietorship)
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
-
Instructions for Form 1040, Schedule C
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
-
Instructions for Form 1040, Schedule SE
- Publication 533, Self-employment Tax
- Publication 334, Tax Guide for Small Business
- Tax information for
Business
- Form 2210 (PDF) Underpayment
of Estimated Tax
If I am an independent contractor, am I considered self-employed?
Generally, an independent contractor is considered self-employed. Refer
to Chapter 5, Business Income, of Publication 334, Tax Guide for Small
Business, for a definition and examples of income from self-employment.
Refer to Chapter 2, Employee or Independent Contractor, of Publication 15-A (PDF), Employer's Supplemental Tax Guide, for more
information on independent contractors.
References:
I work as an independent contractor, but I do not own a business
and do not perform services in the name of a business. Can I file my tax return
without filing Schedule C or Schedule SE?
The income you earn as an independent contractor generally will be considered
income from self-employment and you will need to file Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship),
or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business. You will also need to file Form 1040, Schedule SE (PDF), Self-Employment Tax, if you had net earnings
from self-employment of $400 or more.
References:
What, if any, quarterly forms must I file to report income as an
independent contractor?
There are no quarterly income reporting requirements for Federal income
tax purposes. However, because you will have no withholding taken from your
income, you may need to make quarterly estimated tax payments. You use Form 1040-ES (PDF), Estimated Tax for Individuals.
You need to be aware that there may be state and local requirements for
estimated tax payments. You can start looking for information at How
to Contact Us. You may want to go to your state's individual Web site
for additional information. To access the state you need go to our Alphabetical
State Index.
References:
I made several thousand dollars moonlighting as an independent contractor.
What taxes do I need to pay?
You are responsible for Federal income tax and self-employment taxes on
your income as an independent contractor. Self-employment taxes are your contributions
to Social Security and Medicare. Your self-employment income and expenses
will be reported on Form 1040, Schedule C (PDF), Profit
or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also
need to use Form 1040, Schedule SE (PDF), Self-Employment
Tax, to compute and report your social security and Medicare tax, if
you had net earnings from self-employment of $400 or more. Since there is
no withholding on your self-employment income, you may need to make quarterly
estimated tax payments. This is done using a Form 1040-ES (PDF), Estimated Tax for Individuals.
References:
- Form 1040, Schedule C (PDF), Profit
or Loss from Business
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
-
Instructions for Form 1040, Schedule C
- Publication 334, Tax Guide for Small Business
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Form 1040-ES (PDF), Estimated
Tax for Individuals
- Tax Topic 355, Estimated Tax
- Tax Information for
Business
- Publication 505,Tax Withholding and Estimated Tax
I received a Form 1099-MISC from a company that paid all employees
this way. Will my income go on line 21 of Form 1040 as Other Income or
on Schedule C?
Since your income was reported to you on a Form 1099-MISC, box 7, the company
has treated you as an independent contractor and your income is treated as
self-employment income. You will need to report that income, and any related
expenses, on Form 1040, Schedule C (PDF), Profit
or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also
need to use Form 1040, Schedule SE (PDF), Self-Employment
Tax, to compute and report your Social Security and Medicare tax, if
you had net earnings from self-employment of $400 or more. You may also need
to make quarterly estimated tax payments. You would use Form 1040-ES (PDF), Estimated Tax for Individuals, for this.
If you feel that you were an employee and not self-employed, you can file Form SS-8 (PDF), Determination of Worker Status for Purposes
of Federal Employment Taxes. This will enable the IRS to make a determination
as to whether you are an employee or an independent contractor. To do this
the IRS will need information from you and your employer.
For information about determining whether you are an employee or an independent
contractor, please see Chapter 2 of Publication 15-A (PDF), Employer's Supplemental Tax Guide.
References:
- Form 1040, Schedule C (PDF), Profit
or Loss from Business
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
-
Instructions for Form 1040, Schedule C
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Form 1040-ES (PDF), Estimated
Tax for Individuals
- Form SS-8 (PDF), Determination
of Worker Status for Purposes of Federal Employment Taxes and Income Taxes
- Publication 334, Tax Guide for Small Business
- Publication 15-A (PDF), Employer's
Tax Guide to Fringe Benefits
- Tax Information for
Business
- Tax Topic 355, Estimated Tax
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