If you are doing any kind of work as a self-employed individual, you will receive a 1099 form from whomever you worked for that year.
The types of 1099 forms you may receive are as follows:
- 1099-DIV; informs the IRS that you were paid potentially taxable dividend income.
- Form 1099-C; reports the cancellation of a debt, which is sometimes taxable.
- Form 1099-MISC; reports payments to independent contractors.
Many situations call for a Form 1099, but they all cover payments you receive from a business that may potentially be taxable.
Reporting to The IRS
A 1099 is reported to the IRS and the government will know you received the income, even if you forgot to include it on your tax return. If the IRS catches it and realizes that you owe additional tax on your unreported 1099 income, they will notify you. Once notified, you will be charged penalties and interest beginning on the first day your tax payment was late to the IRS.
How to Amend Your Tax Return
Should you realize you have made the error before the IRS contacts you, it can be rectified. You may file a Form 1040X, Amended U.S. Individual Tax Return as quickly as possible. DO NOT complete your entire tax return all over again! Just update the form with any figures that change as a result of the additional income on the Amendment Form.
If any of your schedule attachments should change, then you must complete the entire schedule again. Always be sure to include a copy of the 1099 with the amended return and include the correct payment for the increased taxes you owe. If you waiting for a refund from the original return, wait until is received before filing the amended Form 1040X.
Self-Employment Tax Forms Update
If you are a Self Employed worker receiving a 1099 and earned over $400 during the year, you must update or file Form 1040SE. This form will list your income that is subject to the self-employment taxes you are filing.
Salaried workers will pay half of the Social Security tax on their income through payroll withholding and the employer pays the other half. If you are self-employed, you are both employer and employee and must pay both halves of the tax. You can normally claim a deduction for one-half of the self-employment taxes you pay.
Late Payment Penalties
The IRS will impose a late penalty of .05 percent per month. They may charge a partial month that late taxes remain unpaid with a penalty cap at 25 percent.
If you forget to file a 1099 and there is a substantial understatement in what you owe, the penalty will increase to 20 percent and will accrue immediately! A substantial understatement is normally if the amount exceeds $5,000 or is 10 percent of the correct amount you owed the IRS on your return.