As well as income earned as an employee there will also be money that we receive elsewhere that is subject to tax. The 1099-MISC form is related to this other type of income with the ‘MISC’ standing for ‘miscellaneous’. Like all other tax forms it is important to fill this one out correctly and to get advice if you are unsure about the information it should contain. Failure to declare any type of miscellaneous income could lead to problems later and so will be best avoided.
What Type of Income Should be Declared on the 1099-MISC?
The 1099-MISC form should contain those types of income that aren’t covered elsewhere in the documentation sent to the Internal Revenue Service. Here are just a few example so the kinds of income that is covered:
- If you have won money as a prize in a competition
- If you receive any royalties for material such as books or recordings
- If you have been given any type of commission
- If you have been awarded a sum of money
- Any rent you receive for any property
The above are just a few examples of what can be included on the 1099-MISC form but it includes any money that is made as a non-employee. There are specific directions for some types of income in regards to what should be reported on the 1099-MISC form and these include –
- Royalties of more than $10 need to be declared by the business making the payment
- A payment of more than $600 from a business to a non-employee
How to Use the 1099-MISC Form
With some payments like royalties you will usually be issued a copy of this form by the entity making the payment – as mentioned above they will often have to declare this payment. It is then up to you to keep this form and later submit it as part of your tax returns. It is vital that you always carefully check any 1099-MISC form that has been given to you to ensure that the information is correct; otherwise you could end up paying the wrong amount of tax or have other difficulties.
Should You Include All Extra Payments on the 1099-MISC Form?
It is tempting to think of extra payments as being money that is exempt from tax; especially where it is less than $1,000. The problem is that we do have an obligation to declare this money and if we don’t it could lead to difficulties. The IRS is insistent that all income needs to be declared so even if we of have only received a relatively small amount of additional income we will need to declare this. If a company that has provided you with this additional income do not provide a 1099-MISC form then you can request one directly from the IRS. It is important to always have the documentation ready for your tax returns in January so you will need to chase any company who should have issued you with one before this time.
