It’s barely the middle of January and the first tax filing deadline is already upon us at the end of this month. Businesses, nonprofits, and other entities may make payments that must be reported on IRS Form 1099. In general, Form 1099 must be completed and filed for each person to whom $600 or more was paid during the year for rents, non-employee income payments, prizes and awards, and other payments defined by the IRS at https://www.irs.gov/forms-pubs/about-form-1099-misc.
Here are four tips to meet the Form 1099 Tax Filing Deadline:
- Payments are reported on either Form 1099-MISC (miscellaneous), or on the new Form 1099-NEC (non-employee compensation) that was implemented beginning with the 2020 tax year. Which form to use depends on the type of payment recipient. For more information about Forms 1099-MISC and 1099-NEC and their instructions, go to IRS.gov/Form1099MISC or IRS.gov/Form1099NEC.
- The due date for filing Form 1099 1099-MISC and 1099-NEC is January 31st for the calendar year ending December 31st. The former 30-day automated extended filing deadline was eliminated in 2016.
- Form 1099 reporting does not apply to personal payments, only payments made as part of a business, nonprofit, trusts of qualified pension or profit-sharing plans of employers. One exception to this is payments of legal fees to attorneys.
- Some payments do not have to be reported on Form 1099, although they may be taxable to the recipient. For example, in general, payments to a C or S corporation, payments of rent to real estate agents or property managers, and business travel allowances paid to employees are not reportable on Form 1099.
If you make payments as part of your business, nonprofit, trusts of qualified pension or profit-sharing plans of employers, your first tax filing deadline for 2021 could be coming up. Use these four tips to see if payments that you made in 2020 need to be reported to the IRS by January 31st. Need more details? The IRS has them for you at https://www.irs.gov/businesses/small-businesses-self-employed/am-i-required-to-file-a-form-1099-or-other-information-return.
Smartphones and apps have made it easier for people to find work, or “gigs”, through new online marketplaces. But gig workers may not understand all the tax obligations of their work situation. For example, companies will probably classify them as independent contractors instead of employees, making them responsible for taxes, insurance, and other financial obligations that employers usually take care of.
The gig economy was growing before COVID-19. Now that work is booming because of even more gigs that are lined up via apps or websites, also called digital platforms. Examples are:
- Driving a car for booked rides or deliveries, such as Uber and Uber Eats;
- Renting out property or part of it, such as on Airbnb;
- Running errands or complete tasks, such as TaskRabbit; or
- Selling goods online, like on eBay.
Digital platforms are businesses that match workers’ services or goods with customers. Instead of the customer directly paying the worker, the customer pays the platform, and the platform pays the worker. Platforms are supposed to issue a year-end income report to workers (i.e., on IRS Form 1099-K or 1099-NEC/MISC). Workers that earn income via a digital platform are required to maintain financial records and report all income on her or his income tax return, just like any other freelance worker.
Knowing about the tax obligations for gig workers is vital because many don’t receive a year-end tax report, like a 1099, for all their work. Income from gig work is generally taxable, regardless of whether workers receive information returns or not. Gig workers also need to know about the business expenses they can deduct to reduce their taxable business income.
Keeping up with the tax rules is a growing issue as the gig economy grows. The IRS recently launched its Gig Economy Tax Center to help gig workers navigate through what they need to know. Check it out here – https://www.irs.gov/businesses/gig-economy-tax-center.
The Gig Economy Tax Center is designed to make it easier for taxpayers to find information about a variety of topics including filing requirements, quarterly estimated income tax payments, and deductible business expenses. They even produced a video to break it down for you – https://www.irsvideos.gov/Individual/PayingTaxes/UnderstandingTheGigEconomy.
The gig economy is growing. Gig workers who educate themselves on all the tax rules for reporting income and allowable business expenses can get it all done correctly and quickly, leaving more time for earning income with more gigs.