Jan. 23, 2023
According to the Internal Revenue Service (IRS), all payments of $600 or more made to an independent contractor or unincorporated business must be reported on a 1099 form. This includes payments made for services, such as consulting, freelancing, and other business activities.
A 1099 must be filed by the recipient, and the amount reported is taxable income. The form must be filed with the IRS, and copies should be provided to the person or entity who paid the recipient. In some cases, the employer may need to file the 1099 on behalf of the recipient.
1099 Versus W-2
The main difference between an independent contractor and an employee is that an independent contractor is a self-employed individual who offers their services to multiple clients, while an employee is hired by a single employer and works for them for a set period of time. Independent contractors typically have more freedom and flexibility in how they manage their business and their services. On the other hand, employees are usually subject to more restrictions and regulations from their employer.
A W-2 form is used to report wages, tips, and other compensation paid to an employee by their employer. The employer is responsible for withholding taxes from the employee's wages and filing the W-2 form with the IRS. The payer is responsible for filing the 1099 form with the IRS.
The employer or other payer is responsible for issuing the 1099 form. Generally, this includes employers who pay independent contractors, business owners who pay non-employees, and financial institutions who pay interest or dividends. The employer is responsible for withholding the applicable taxes and filing the form with the IRS.
The deadline for filing a 1099 for the current tax year is January 31st. Forms must be postmarked or e-filed no later than this date. If the recipient does not receive the form by this date, they should contact the employer or payer to request a copy.
If an independent contractor does not receive a timely 1099, they should contact the employer or payer to request a copy. If the employer or payer cannot provide the 1099, the independent contractor should still file their taxes and report the income as best as they can. They can also estimate the total income they received and report it as "other income" on their tax return.
The new rule for 1099-K reporting went into effect on January 1, 2022. All online marketplaces, including eBay, are required to issue Form 1099-K to sellers who have at least $600 in business transactions in a calendar year. The Form 1099-K will provide information about payments received since eBay started managing your payments, including the gross amount and number of payment transactions as well as your name, address, and 9-digit Tax ID. This information will also be reported to the IRS, and the correct state tax authority, where applicable.
However, the IRS has delayed the $600 rule for Form 1099-K reporting by one year, meaning that payments of $600 or more made through online marketplaces and third-party payment networks will not be reported to the IRS until 2023. This means that for 2022, the $20,000 threshold for Form 1099-K reporting will remain in place. The IRS has also stated that taxpayers must still report all taxable income, regardless of whether or not they receive a 1099-K form.
Penalties And Interest
Failing to pay taxes on 1099 income can result in penalties and interest, depending on the circumstances. The IRS may assess a late payment penalty of up to 25% of the tax due, in addition to interest of up to 3% per year on the unpaid amount. The IRS may also impose criminal penalties for failure to pay taxes, including fines and/or imprisonment.
The New Jersey Division of Taxation imposes interest and penalties for failing to report 1099 income. Interest is charged at the rate of 1.5% per month, or any fraction of a month, from the due date of the return. Penalties are assessed on a sliding scale, with a minimum of 5% and a maximum of 25% of the tax due.