1099 Vs. 1099-K: What You Should Know

You are an independent contractor. When beginning to work with a particular client, a W-9 should have been received or request for taxpayer identification number and certification. That information is used by each client to issue a 1099- MISC, or Miscellaneous Income form, which states the amount of non-employee compensation you received from the client last year. Unlike a W-2, no taxes have been withheld from the money received from the client.

If earnings were less than $600.00 from a client and a 1099 was not received, that income must still be reported to the IRS. For each independent contractor who has earned more than $600 for your company for services rendered in 2011, copy A of the 1099 must be sent to the IRS. However, the contractor is not required to provide a 1099-MISC form. When someone begins to work for you, know beforehand if that individual is an employee or an independent contractor.

When using financial software, such as QuickBooks, set up each independent contractor as you go along throughout the year. Enter their EIN or Social Security numbers into the information fields. If not using financial software, use other on-line software that will help generate 1099′s such as http://www.filetaxes.com.

1099 Deadlines & Specifics:

• By January 31st - Send 1099 copies B & 2 to the contractor

• By February 28th - Send copy A & copy 1 to the IRS and State Department

• Copy c is the business owner's (Payer's copy for their records)

• Copy A (In Red Ink) is sent to the IRS

In recent news it has been learned that the federal government estimates that there is a $300 billion "Tax Gap" each year. This is the difference between the amount of money individuals and businesses owe to the government and what they pay. A new form called a 1099K is intended to help catch those who don't properly report their income to the IRS.

The floor to the new requirement is less than 200 transactions for the year totaling less than $20,000. Typically credit card and debit card companies have to report these levels of transactions to the IRS. The new law also applies to companies like PayPal and Amazon.com. Because of the change in the law, the social security number or Employer identification number will need to be reported to payment processors like PayPal or credit card companies.

The 1099-K is the latest addition to the family of 1099 IRS documents. The 1099K joins other 1099 forms that report things like interest income, dividends, and distributions and miscellaneous income.

If you're an independent contractor, 1099′s are likely to have hit your mail box now. These are the tax documents sent by business owners for whom you've done $600.00 work or more in the past year. As business owners are required to meet the first 1099 deadline by having them in the mail by January 31st for independent contracting work done in 2011.