With the increasing number of workers in the United States willing to give up their W-2s for 1099s, I thought we’d give today’s tax lesson on what 1099s are all about.

1099 tax forms are used most often for independent contractors, also known in the industry as “freelancers.” The forms serve as a record of the income the independent contractor received from a particular business or businesses. It is reported to the IRS so they have the opportunity to track income from freelance workers. On a 1099 form, the income earned will be noted, and there will be no deductions for federal and state income taxes, nor will any deferred compensation, social security, or medical deductions be taken. The reason for this is the fact that the 1099 recipient is not an employee of the business, which therefore means the business is only obligated to pay the income to the independent contractor without any deductions. A growing number of businesses are using the 1099 form so as to save on costs related to employee insurance and retirement plans. Once a job with the independent contractor is completed, all the business has to do is issue the 1099.

So who will you be getting 1099 forms from this year, as an independent contractor/freelancer? Basically from any individual or company that has paid you $600 or more this past year is required by law to report that payment. The 1099 form is to be sent to you and the Internal Revenue Service by Jan. 31.

With a 1099, the independent contractor will be obligated to make his or her own tax deductions, and forward such payments to the IRS. Each independent contractor/taxpayer is legally responsible for reporting the correct amount of total income on his or her own Federal income tax return regardless of whether a Form 1099 was filed. Note that when you get a 1099, the government gets also receives a copy, so you cannot simply ignore it. Look it over as soon as it arrives, and compare it to your own payment records. If there is a discrepancy, figure out why as soon as you can.

The 1099 MISC form, as described above and pertains to miscellaneous income, is the most popular and commonly used of the 1099 tax forms. There are several variants of the 1099 form, which include the 1099 INT form, which denotes the interest the government may have paid in a particular tax year; the 1099 G form, which denotes any tax refund you may have received from the government; and many more.

Again, because I am not a tax professional, I strongly encourage you to speak to your accountant or other tax preparation professional about the 1099 form(s). If you have any other questions on this that you would like me to post about as I continue the postings on tax information, please comment here.

Check on Monday for Part III, which will pertain to further tax info (such as Social Security and Medicare) for self-employed individuals.

Have a great weekend, everyone!

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