Interest, Dividends, Other Types of Income:
1099–MISC, Independent Contractors, and Self-employed
This is archived information that pertains only to the 2005 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
I received a Form 1099-MISC instead of a Form W-2. I'm not self-employed,
I do not have a business. How do I report this income?
If payment for services you provided is listed in box 7 of Form 1099-MISC (PDF), you are being treated as a self-employed worker, also referred
to as an independent contractor. You do not necessarily have to "have a business,"
but simply perform services as a nonemployee to have your compensation treated
this way. The payer has determined that an employer-employee relationship
does not exist in your case. That determination is complex, but is essentially
made by examining the right to control how, when, and where you perform those
services. It is not based on how you are paid, how often you are paid, nor
whether you work part-time or full-time. There are three basic areas that
are relevant to determine employment status:
- behavioral control,
- financial control, and
- relationship of the parties
For more information on employer-employee relationships, refer to Chapter
2 of Publication 15 , Circular E, Employer's Tax Guide and
Chapter 2 of Publication 15-A (PDF), Employer's
Supplemental Tax Guide. If you think that you were, or are, an employee
and you would like the IRS to issue a determination, you may submit Form SS-8 (PDF), Determination of Worker Status for Purposes
of Federal Employment Taxes and Income Tax Withholding.
Unless you think you were an employee, you report your nonemployee compensation
on Form 1040, Schedule C (PDF), Profit or
Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You also need
to complete Form 1040, Schedule SE (PDF), Self-Employment
Tax, and pay self-employment tax on your net earnings from self-employment,
if you had net earnings from self-employment of $400 or more. This is the
manner by which self-employed persons pay into the social security and Medicare
trust funds. Employees pay these payroll taxes, as well as income tax withholding,
through deductions from their paychecks. Generally, there are no tax withholdings
on self-employment income. However, you may be subject to the requirement
to make quarterly estimated tax payments. If you did not make estimated tax
payments, you may be charged an underpayment of estimated tax penalty.
I am self-employed. How do I report my income and how do I pay Medicare
and social security taxes?
You are a sole proprietor if you are the sole owner of a business that
is not a corporation. Report your income and expenses from your sole proprietorship
on Form 1040, Schedule C (PDF), Profit or
Loss from Business (Sole Proprietorship), or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.
If the total of your net profit from all businesses is $400 or more, you
must pay into the Social Security and Medicare systems by filing Form 1040, Schedule SE (PDF), Self-Employment Tax.
Self-Employment tax consists of the Old-Age, Survivors, and Disability Insurance
(social security) and the Hospital Insurance (Medicare) taxes. For more information
refer to chapter 1 of Publication 334, Tax Guide for Small
Business.
The Federal tax system is based on a pay-as-you-go plan. Tax is generally
withheld from your wages or salary before you get it. However, tax is generally
not withheld from self-employment income. Thus, you may be required to make
estimated tax payments. Publication 505, Tax Withholding and Estimated
Tax, provides information on making estimated tax payments.
My son is a newspaper carrier. I would like to know if this income
is subject to Social Security and Medicare tax and if I must file a Schedule
C for him?
Your son may be liable to pay into the Social Security and Medicare system
by paying self-employment tax. However, if your son is under the age of 18,
he is exempt from self-employment tax. His employer should complete the other
income box on Form 1099-MISC (PDF) , Miscellaneous
Income. Persons engaged in the trade or business of delivering or distributing
newspapers or shopping news (including any services directly related to such
delivery or distribution) are considered by statute as non employees and are
treated as self-employed for all Federal tax purposes, including income and
employment taxes. Only if they receive income based on number of sales or
distribution volume and work under a written contract that says the carrier
will not be treated as an employee for federal employment tax purposes.
Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship) ,
or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business . See Form 1040, Schedule SE (PDF), Self-Employment
Tax , which must be filed if net earnings from self-employment are $400
or more.
References:
- Publication 15 , Circular E, Employer's Tax Guide
- Form 1040, Schedule C (PDF), Profit or
Loss from Business (Sole Proprietorship)
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
- Form 1040, Schedule C Instructions
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Form 1040, Schedule SE Instructions
- Publication 334, Tax Guide for Small Business
- Tax information for
Business
- Form 1099-MISC (PDF) , Miscellaneous
Income
- Publication 15-A (PDF) , Employer's Supplemental
Tax Guide
I received a Form 1099-MISC with an amount in box 7, (nonemployee
compensation). What forms and schedules should be used to report income earned
as an independent contractor?
Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship),
or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net
Profit from Business (Sole Proprietorship). You should also be aware
of Form 1040, Schedule SE (PDF), Self-Employment
Tax, which must be filed if net earnings from self-employment are $400
or more. This form is used to figure your social security and Medicare tax
which is based on your net self-employment income. You may also need to file Form 2210 (PDF), Underpayment of Estimated Tax by Individuals,
Estates & Trusts, if you do not make estimated tax payments.
What, if any, quarterly forms must I file to report income as an
independent contractor?
There are no quarterly income reporting requirements for Federal income
tax purposes. However, because you will have no withholding taken from your
income, you may need to make quarterly estimated tax payments. For information
on how to make estimated tax payments refer to Form 1040-ES (PDF), Estimated Tax for Individuals.
You need to be aware that there may be state and local requirements for
estimated tax payments. You can start looking for information at How
to Contact Us. You may want to go to your state's individual Web site
for additional information. To access the state you need go to our Alphabetical
State Index.
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