One of the challenges gig workers face is keeping up with different sources of income during the year – and remembering to pay taxes on it all. Whether you’re a small business owner, an independent contractor, or someone with a bunch of side hustles, you likely have dozens of different payees sending you 1099 forms during tax season.
That doesn’t even include 1099 income earned from interest on savings accounts, canceled debt, and other sources. All of these sources of income must be reported on your tax return. Even if you didn’t receive a Form 1099 for the income you earned, you still need to report the income. Failure to do so can cost you a lot of money in penalties and late fees.
As noted on the Intuit TurboTax website, there are many different types of 1099 forms (and dozens of situations that might require one). The one thing they all have in common is that they cover payments you receive that are potentially taxable. Because the 1099 you receive is also reported to the IRS, the tax agency knows about your income — even if you forget to include it on your return.
If the IRS finds that you owe additional tax on your unreported 1099 income, it will typically notify you and retroactively charge you penalties and interest starting on the first day they think you owe additional tax, according to Intuit TurboTax.
You can usually expect the IRS to charge a late payment penalty of 0.5% per month as long as the late fees are unpaid. But if the 1099 income you forget to include on your return results in a substantial understatement of your tax bills, the penalty increases to 20%, which accrues immediately.
A substantial understatement applies if the income tax you failed to include on your return exceeds the greater of $5,000 or 10% of the correct tax required to be shown on your return. The penalty is capped at 25%.
Payers have until Jan. 31 to send you a 1099, so you should receive them by early February, according to the IRS. If you haven’t received an expected 1099 by then, contact the payer. If you haven’t received one by mid-February, contact the IRS.
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Note that you are still responsible for reporting your 1099 income whether you receive the form or not. That’s why it’s a good idea to keep a running log of all 1099 income throughout the tax year. In some cases, you can also find 1099 income on your bank statements or payment platforms.