by Natalie Friedman
My boss at the gym where I work handed me an envelope and when I opened it I discovered a 1099 form.
What? I had never seen a 1099 form before. She never mentioned it to me. All I could think was my boss 1099’d me and now what?
I discovered that I have to pay taxes on the money I earned in 2014 because my employer didn’t withhold taxes.
All my friends planned vacations with their tax refunds, and I’m working and staying in New York to earn the money to pay what I owe.
I know I should have known something was up when I got my paycheck every month. But I engaged in wishful thinking. I automatically assumed my employer would pay the taxes in the end.
After she handed me that envelope, I had to face the music. I’m responsible for paying a year’s worth of taxes. And to tell you the truth I hate the idea.
But I have to do it.
I guess you can call it a learning experience. So I’ll share what I learned.
1. When you work for someone, either you’re an independent contractor or an employee.
2. Employees have taxes withheld by their employer and at the end of the year they get a W-2 statement.
3. Independent contractors don’t have taxes withheld and are responsible for paying taxes on the money they earn. The IRS categorizes us as people who are in business for ourselves.
We get a 1099 that shows exactly how much we earned from a specific employer and we must pay taxes based on that.
The IRS considers you an independent contractor if:
• You are self-employed
I’ll pay the taxes, but what really bugs me is that my employer didn’t tell me upfront that I was responsible. I would have planned for it, now I have to scramble to put the money together to pay taxes.
SOME GOOD NEWS
ConsumerMojo.com did find some good news in all of this. CPA Gregory Beck told me, “Individuals and businesses who receive form 1099-MISC are allowed to deduct the ordinary and necessary business expenses incurred to earn that income, which could include among other items business use of vehicle and office in the home.”
In other words you can deduct things.
Beck also suggested consulting a tax professional who is experienced with a 1099 form to help you navigate this world.
If you get a freelance job, ask the person who hires you if they consider you an independent contractor or an employee.
Ask if you’ll have taxes withheld, or if you will have to pay the taxes at the end of the year after you receive a 1099.
I hate having conversations like that especially if it’s for a part-time job. But now I know I have to do it.