What Is A 1099 Form & Who Is It For?


A lot of people have a misunderstanding of what a Form 1099-MISC actually is and who will receive it. 


The Difference With A W-2.


Someone who is considered to be an employee of a company (whether it be salaried or paid by the hour) will always receive a Form W-2, which shows how much money has been withheld throughout the year for federal, state, Social Security and Medicare taxes. This person will obviously be responsible for paying half of the payroll taxes due based on his taxable income. His employer withholds and pays the other half. For 2012, the total amount due is 13.3 percent, down from 15.3 percent as a result of Congress’s economic stimulus plan.



This is a simple example of a W-2 form. You can clearly see the predetermined tax withholdings on the right side. Have a look and compare this picture with the picture down below which shows an example of a 1099 form.


A 1099.


For the income reported on a Form 1099-MISC, however, no tax has been withheld by the party that paid the self-employed individual for work performed. The self-employed person is responsible for paying the full amount of payroll taxes on the amount listed on the Form 1099. A 1099 means you’re liable for self-employment tax. Some people mistakenly believe that if they receive a Form 1099, it does not necessarily mean the IRS received a copy. That scenario, however, is highly unlikely. If you get it, the IRS got it.


Similarly, people erroneously believe that if they did not receive a Form 1099, they don't have to report the tax. The IRS does not care whether you received your Form 1099. If you received untaxed income, you must report it. In fact, beginning in 2012 (for the 2011 tax year) businesses and corporations must respond, via a line-item question on their tax forms, whether they paid miscellaneous income during the year.

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There you go. A simple example of a 1099 form. You can recognize this form by it being label on the bottom left corner stating "1099-MISC". Usually your employer will ask you to fill in your address and SSN or EIN. There might be a slight different in the way this form looks in real life since I'm not sure the screenshot has captured the image well, but this should give you a general understanding of what it looks like.


Bottom line.


When you work as a freelancer, you will most likely receive a 1099. If you have worked as a freelancer and don't receive a 1099, go after that specific employer and ask for your 1099. Because you will be the only one who is in fault here since you are liable for self-employment tax. And when the IRS receives their copy, but not your response, it will be you dealing with the consequences. So who is this 1099 form for? For people who have performed tasks and gigs under the self-employed category not receiving a W-2 from a company. 

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