I am 24 and considered as independent for FAFSA. I made $4300 as an independent contractor in 2014. My accountant is saying I don’t have to report taxes because the amount is $6500.00 to report.
My college is saying I need to report my income because as a student it is $400…anyone know the answer here?
thanks
It’s not $400 because you’re a student. It’s $400 because you were self-employed. This isn’t a fafsa thing, this is an IRS thing. You may need to pay self-employment tax, that is your and the employers(you) share of social security and medicare tax.
See number 3 on page 5 at this link:
What kind of fly-by-night accountant doesn’t understand basic tax filing requirements?!
Does your accountant plan to declare it as other income instead of self-employment income?
My kid is self employed. He has to declare every penny he earns because he earns over $400.
I think your accountant is wrong.
The threshold for what didnt need to be reported on a 1099 used to be $600. Did that change?
@jym626, if I’m not mistaken that is the threshold for someone having to issue a 1099.
The threshold for requiring that an employer report a contractor’s income on a 1099, and the threshold for a contractor filing Schedule SE to report self-employment income are two different things.
It is easy for a free-lancer to have umpteen employers but never receive a single 1099.
Employers issue W2s, not 1099s. Contractors issue 1099s.
$6500 sounds like a W-2 income because that’s standard deduction.
@DrGoogle I believe the poster said the income was as an independent contractor, not an employee who will receive a W2.
Yes, mommdc. If someone is paid less than $600, no 1099 is necessary. Anyone ever 1099 their lawn guy or cleaning lady (and no I dont mean if you do it yourself!)
I think the tax guy must be thinking W-2 income.
You don’t have to issue a 1099 if the person/business is hired to do a job as his business. You don’t issue one to a plumber or a painter or piano teacher. They are independent as they are setting their own wages, hours, aren’t supervised by you; you can say you want your piano lesson at 1, but it is up to the teacher to agree or walk away. You hire the person to do a job and might sign a contract or a receipt, but the person does the job his way. You don’t issue one to your dentist, and oh believe me, I’ve paid him more than $600 in a year for a personal service.
There are special rules for personal services like being a nanny or housekeeper and who has to file and what services require a 1099 or W2.
Anyone ever notice that line 14 on a 1099 is “gross proceeds paid to an attorney”?
The reason you don’t issue a 1099 to your plumber or piano teacher is that the payor isn’t a business. The payee’s status is only relevant if the payee is taxed as a corporation.
@jym626, yes, we attorneys are very aware of that line! That’s because the amount paid to an attorney might not all be income to the attorney; it might actually belong to the client. For example, when a lawsuit is settled, the check might be paid to the attorney, deposited in the attorney’s trust account, then most paid over to the client (except for the attorney’s fee). So the defendant might pay $100,000 to the attorney, but $75,000 of that is not really the attorney’s money. Most other professionals don’t routinely collect money that isn’t theirs. And it’s also quite possible that the payor doesn’t know how much really belongs to the attorney, and how much to the client, since that may be confidential. And finally, since some portions of some settlements are taxable to the client receiving the settlement, this gives the IRS a way to at least have a ‘heads up’ that a large amount was paid, some or all of which might be taxable (though they might have to harass the attorney or the payor to find out who actually received it, but the attorney is supposed to 1099 the recipient if the recipient isn’t a corporation - you don’t send a 1099 to a corporation). Basically it allows the IRS to track large settlements - they can make sure the full amount paid is accounted for, some reported by the attorney and the rest by the client, and the appropriate taxes paid.
Also we all know that the IRS hates attorneys, so this gives them an easy way to know who to pick on. (JK)
@allyphoe, I have always wondered about that. How am I, the payor, supposed to know how the payee is taxed? Especially if, like my landlord for example, it is an LLC that can change its taxation every year? I’m sure my landlord would not appreciate being asked if it is taxed as a partnership or a corporation, so I just send the 1099 every year and let them throw it away if they are electing corporate taxation. That’s what my CPA said to do.
Allyphoe,
I read your response to DH and he said that wasn’t sounding correct. But no matter. I paid subcontractors with a 1099 but anyone who was a corp and had a tax id # didn’t need/ get one.
“How am I, the payor, supposed to know how the payee is taxed?”
The same way you know the ID number to put on the 1099 - you give them a W-9 and they fill it out.