Solving 1099 Problems

Thursday Bram |
Freelancing Essentials
| February 2nd 2010

If you work with clients based in the U.S, you’ve probably received a Form 1099-MISC. That’s the form that a business uses to report money paid to contractors, as well as to report other income. You should receive a copy of the form from your clients by January 31 of each year. Your clients who issue Form 1099s also send a copy to the IRS, letting them know how much income you really ought to be reporting on your taxes.

But this system is notoriously full of problems. Maybe you didn’t actually receive your copy of the form. Or maybe your client reported a number to the IRS that had nothing to do with what they paid you this year. Or maybe your client went out of business before they could even get around to filing their taxes. Whatever the circumstances, if you’re a U.S. taxpayer, you need to get that paperwork straightened out so that the IRS doesn’t hassle you about incorrect numbers.

Dealing With 1099 Problems

When you receive your 1099s in the mail, it’s important to check them off against your own books. If the numbers you think that a client paid you over the last year don’t match up with what they think they paid you — and, believe me, it happens more often than you might expect — you can wind up with a problem. Similarly, you want to check details like your Social Security number as well.

1099s for Too Much: If a client sends you a 1099 listing a number above what they actually paid you over the course of the year, it’s crucial that you get that client to send an amended Form 1099 to the IRS — and fast! The IRS will assume the form sent by your client is correct and will require you to pay taxes to cover that amount, no matter what your tax return shows. If you can’t get your client to revise the form to the correct amount, it’s up to you to appeal to the IRS directly. You’ll need to have proof (like a certified letter) that you tried to contact your client and resolve the issue on your own.
1099s for Too Little: It may seem like a free pass if a client fills out a 1099 for less income than you actually received, even an opportunity to avoid reporting the full amount to the IRS. That’s a bad idea, though. Your client can revise his 1099 at any time he wants, and if he wants to write off your services as a tax deduction, he’ll definitely do just that. You aren’t necessarily obligated to request a revised Form 1099, but it can be a good idea.
A 1099 with the Details Wrong: Misspellings, bad addresses and other incorrect information may show up on one of your 1099s. It’s generally best to notify your client of such errors, but as long as your Social Security number is correct, the IRS will still match your forms to you. In a perfect world, you’d get revised paperwork in the event of any error, but in reality, it’s only worth worrying about if you need your client to fix your Social Security number.
No 1099 at All: Sometimes things happen. A form will get lost in the mail. A client will send a copy of the form to the IRS but forget to send it to you. A client will just fail to send out forms at all. Just the same, it’s generally best to go ahead and report your income in full. Just because you don’t have a copy of a 1099 for your income doesn’t mean that the IRS isn’t aware of it.

It’s worth noting that if you’re an American citizen but not actually living in the U.S, the IRS still will hold you responsible for getting your income tax return completed on time and correctly. I know quite a few freelancers who have headed off to another country to find a lower cost of living, some under the impression that since they aren’t working in the U.S, they don’t owe taxes. Just because a freelancer doesn’t have an address where he can receive his 1099s and other tax documents doesn’t let him off the hook though. If you’re traveling, it’s critical that you have a way to get your 1099s in a timely manner, especially if you want to make sure that you have enough time to handle any problems.