A common problem for anyone who works as an independent contractor is how their tax is managed. If you take in more than $600 in earnings from a client over the year then they need to file a specific form; a 1099-MISC. This means that how you pay your tax as much as anything else is going to change, and it can be a big issue if you wind up being hit with an incorrect 1099-MISC.
Many employers will deduct income tax from their employees, but with this you don’t get that happening. No income tax is withheld from your payment and you don’t go through with a W-2. This means that you have a very different means of taxation from most other people, and you need to go through your 1099-MISC with the IRS, your state and also yourself.
Sometimes, incorrect numbers on a 1099 that does not correspond with your tax return amounts can get you audited and put into a tight spot. But what about if you have received an incorrect 1099-MISC?
This is more common than you might expect and can be an annoying part of the process to deal with when you want to change it.
When to Check
Ensure that all of your 1099 forms are checked by the 31st January of the current year for any 1099s the year previous. Also make sure that all firms that you have worked with have the right details for you so that they can send the correct forms to you at the right location.
If you do this, then you are more likely to get the help that you need in avoiding any mistakes. Ensure that what clients are suggesting matches up with the reality in terms of what you have listed and what the real income shows. If there is a mistake, then you should be in touch with the client as soon as you can to thrash out a solution.
The client may not have filed with the IRS yet, but if they have you need to get them to send off a corrected form ASAP. The longer it goes, the more likely it is that the IRS will expect you have something rather sinister to hide.
There is a box to tick that shows its correcting an oversight; be sure that they tick that to avoid anything coming across as too complex for the IRS and the tax authorities when evaluating your performance.
Another problem is clients who won’t file a 1099-MISC because they don’t want the IRS to know they used your service. This is a bad position to be in as it can make you look false, although don’t always presume it’s down to duplicity – it’s easy to forget.
Keep in mind that if the client will not file, it is nothing to do with you. It’s the clients’ responsibility, not yours; you cannot be held liable for their tardiness. Be sure to include all relevant facts yourself to avoid penalties.
