My wife does freelance work as an independent contractor for various online businesses. While this is not big bucks, she earns enough to have to declare the income on our taxes. All of these companies are good at issuing 1099-MISC forms. However, one company (for which she made $3000) did not issue a 1099 nor any other such IRS form for earned wages. When my wife inquired, this company replied they do not issue 1099s. They expect their contractors to track their own records of payment. Is this legal?
Note - Our concern is this: If we are honest and report this “undocumented” $3000, the IRS will find an inconsistency which may flag us for a full audit. Not that we have anything to hide, but who needs the headache?
If a business gives someone more than $600 they have to give them a 1099. At least that’s always been my understanding. They also have to be mailed out by Jan 31st.
ETA, read all those rules, I’m sure there’s plenty of reasons why some business/people may not have to hand them out. Know what you’re talking about before you go running back to them with some rules that a random person on the internet gave you.
One other thing. You/she asked for one and they refused. I wouldn’t bother pestering them at this point. Just go to the 1099 section on your taxes and fill it out as best you can. If she knows exactly how much it was. Assuming they didn’t withhold any taxes, it shouldn’t be hard to fill out.
Out of curiosity, did they pay her in cash? It’s possible they were paying her under the table with the intention of her just keeping all the money. That’s pretty common for a lot of businesses.
I wouldn’t worry that reporting the income will flag an audit. It’s probably not an uncommon occurrence that some businesses don’t issue 1099’s. In fact, I’d bet that if someone get’s flagged, it will be the employer.
I’ve got to visit my accountant tomorrow for my taxes so I’ll run this by him to see if there’s a definite requirement.
Hmm, interesting question because this company pays into her PayPal account. Yet, so do the other companies. I am not sure if this counts as cash, but no taxes are withheld because she is considered an independent contractor.
I doubt if this is the fist time the IRS has ever encountered such a thing. In your stack of 1099s, put in a slip of paper saying “Earnings, $3,000, from Xyhz. No 1099 provided.” I seriously doubt anybody at IRS even goes through the papers to see what is actually supported, unless they suspect a discrepancy.
Independent contractors and other businesses are required to report all income they receive, whether reflected on form 1099 or not. Although businesses are generally required to issue 1099s for payments more than $600, many transactions with individuals, or smaller transactions will not involve 1099s, but they still need to be reported.
The reason that the government is requiring the issuance of the 1099s is not so the recipients have a record of what they are paid. Instead, it is to make sure that the recipients report at least that much on their taxes. If the gross income you report is LESS than the total income that was reported having been paid to you on 1099s, the IRS may flag your return. However, if you report MORE gross income than was reported on your 1099s, the IRS should not care because they know that many transactions will not have 1099s associated with them.
When she reports her independent contractor income, she is required to report all income received, whether or not she got a 1099 reflecting the income. The fact that the IRS doesn’t get a form for all income she receives is not really her problem, and not something the IRS should have a problem with (at least for her, it might get annoyed at the company not issuing the 1099s).
My accountant pretty much confirmed my previous post. Businesses are required to issue 1099’s with more than a few exceptions. The flip side is that the IRS generally can’t be bothered to care unless the number of missed forms gets into the high hundreds.
There is no 1099 section. You don’t send them to the IRS anyway. Put it on line 21 or Schedule C, depending on the nature of the income (misc vs independent wages). If anything shady is going on its the person who paid’s problem.
You do NOT issue 1099-MISC forms for payments made via third-party services such as PayPal or via credit cards.
Be grateful that this company is up on the rules. There are many businesses and even accountants who are still in denial about this relatively new regulation. Contractors then receive double reported income (on a 1099-MISC and on a 1099-K from PayPal) and then have to struggle when the IRS document-matching program flags that she didn’t report both. You can find people struggling with this all over the internet.
I asked a tax professional many years ago what I should do with all my 1099’s that I received … he noted that the income I was reporting was four times the 1099 total … he said don’t worry about them at all … the IRS is not set up to find people who overpay their taxes by reporting taxable income a person didn’t receive … add $100,000 to your AGI and nobody cares …
Maybe a nitpick or just a confusion on my part … if we pay more than $600 to a corporation in a year, we don’t have to send a 1099 … imagine Comcast and the IRS having to deal with a 1099 from each and every one of their customers … grocery stores, electric companies, internet providers, gas stations … each of us pays $600 to a half dozen businesses every year … there’d be a complete log jam in every post office on Jan 31th every year … and you don’t have to send a 1099 to your local and state tax collectors …
From the 2018 Instruction for the Form 1099-MISC: “Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable.” … this instructions also include many more exceptions to the reporting requirements …
+1 it’s always been my understanding that if it’s over $600 they’re required to report it and issue a 1099. Are they reporting it but not issuing the required documentation?
In that case, Paypal should have sent her a 1099-K.
If you send a 1099 go the government, you have to send one to the recipient as well. At least that’s in the rules for 1099-misc and 1099-k. I’d wager it’s the same for the rest of them as well.
The OP said his wife only made $3000. The minimum at which PayPal is required to issue a 1099-K is $20,000.
The IRS is quite aware of the gap between the $600 minimum for 1099-MISC and the $20,000 minimum for 1099-K and has explicitly addressed this in the regulations. The regulations tell the payer not to concern themselves with this. If they pay through a third-party network, they are not to issue a 1099-MISC, regardless of amount.
Treas Reg §1.6041-1(a)(B)(iv):
The examples in the regulations, like the one I quoted in my previous reply, use an example of a $600 payment and conclude that the payer should not issue a 1099-MISC.