Do I need to file a 1099? And how does that work?

Question

Here is my situation. I am an IT consultant working by W2, and this year i would have made about 15k (worked 6 months), and 6 months of unemployment which I had them take out the taxes for.

Recently I did a programing job for a company in NY. They payed me $3,000 (company check).

What am I supposed to do? Deposit it, and fill out a 1099 when I do my taxes? Is the company supposed to send me a form so I can do the 1099? I am not sure what the procedure for this would be, but if you guys can give me an idea of how this works I'd appreciate it.

I don't want to have any problems when I deposit this and do my income tax in january.

Thanks in advanced.

-Lex

Answer 1

The company will most likely send you a 1099 at the end of January.

If you do not get one, keep a copy of the check as proof of payment and file as self employeed on your tax return.

Answer 2

Lex-

No, forms 1099 are a series of forms that payers use to notify IRS (copy to the recipient) thatthey paid someone money. The idea is to prevent prople from not reporting income. Thus, you do not file form 1099.

You do however, file Schedules C and SE. C is a profit and loss form- you show the income and subtract the expenses that created that income. The bottom line (net income) goes to line 12 on form 1040(LONG Form) AND line 1 on Sch SE.
In addition to the net income being included in "income taxable income" it will also be subject to an additional tax.

What is SE (Self-employment) Tax? Employees have withheld from their pay 7.65% for Social Security and Medicare. The employer matches it. Self-employed people pay both sides of this so SE tax is "double Social Security."

See the links below for forms & instructions.

If you have shown all your income in the scenario, then you will be in the 15% income tax bracket. Add another approx 15% for SE tax and the tax on the NET income will be 30%. Let's say that you spent $200 to create the $3000 of income- your net is then 2800. At 30% this increases your tax by $840 over what it would have been without this income. Given the other numbers, and assuming that you are single you probably did not have enough over-withheld to cover this. However since you will owe less than $1000, there will be no penalty for not making estimated tax payments.

I suggest that you play with the attached forms/instrucions to see if you can do them If not, go to a professional, Either way do it sooner than later, so you know the extent of the bad news. Remember that you have till 4/15/08 to pony up the $$. If you start now it will be less per month.

Also, don't forget about state taxes on this money. It has not paid its own way for NY either.
Good luck!

Answer 3

If you are their employee, you give them a W-4 and they withhold taxes and give you a W-2; same as on any other job; and the only 1099 is the one from the state for the unemployment compensation.

If you are not their employee, then you are an independent contractor. When you file your return, you must also file Schedule SE and either Schedule C or Schdule C-EZ. The company should send you a 1099. You would not send them one. They may require you to give them a W-9, which is a form asking for little more than your name, social security number, address, etc. They should have asked for this form before sending the check; I do not know if they will do so later.

Deposit the check for now. If you have had plenty of taxes withheld already, and were expecting a large refund, figure out the taxes later. Otherwise, use Form 1040-ES to send in a payment to the IRS now, so that you are not penalized later for underwithholding.

Answer 4

You don't fill out the 1099. The company that you did the work for is supposed to send you one that THEY fill out. But whether they do or not, you'll fill out a 1040 schedule C or C-EZ showing your consulting income and any allowable expenses for earning that money, and a 1040 schedule SE to calculate your self-employment tax on that amount (social security and medicare). The numbers from the bottom of those two schedules will transfer to a form 1040 (you can't use 1040A or 1040EZ this year). Your W-2 income and your unemployment benefits, and the federal income tax withholding from both of those, will also go on the 1040. You'll then figure your tax on the form 1040.

Answer 5

That company is only required to give you a 1099 statement by late January 08. You would be considered an independent contractor/IC. You may file your taxes quarterly or annually and you decide whether to withhold social security or not.

Answer 6

For the $3,000.00 you will have to fill out a 1099. It is very simple, you can get the form wherever you get your tax papers. For an estimate of how much self-employment tax you'll pay, you might call and ask a preparer, the IRS itself or estimate it by using the book/forms from the previous year.