As the freelance community grows and laws change, double income reporting has become a more common problem.
But what exactly is double income reporting? Eric Nisall from AccountLancer recently shared some important information on double income reporting, and the basics are:
- Double income reporting happens when you receive a 1099 form from a business and a 3rd party such as PayPal, for work you completed for a company
- If a person or company is paying you through a 3rd party site, they should not be sending you a 1099 form.
- To qualify to get a 1099-K, you must receive $20,000 in the tax year, AND have 200 transactions.
How It Happens
When you are working with a company, they may not know the laws for reporting income via 1099 forms. An employer is required by the IRS to send in W-2 forms every year, and that includes money paid to contractors. If a person individually pays you $600 or more within the year, they will send you a 1099-Misc form.
If a company is paying you via a 3rd party website, that website will give you your 1099-K if you meet the requirements($20k + 200 transactions in a year).
This becomes an issue when both the parties report the same income when you were only paid once. For example, both parties report that they paid you $100. Now it will seem like you were paid $200 overall. You are now making double what you really are, and the IRS will expect their cut.
How To Avoid Double Income Reporting
Unless a company pays you directly, either by cash or check, they should not send you a 1099 form. That would come from the 3rd party site (like PayPal or Stripe).
The best way to keep this from becoming an issue is to let your clients know before you complete any work. If they are paying you via cash or check, they can send a 1099 form. If they are paying you with a 3rd party source, your contract needs to state for them not to.
But what happens if a company sends one anyway?
Report it to the IRS. Give them a call, and let them know why you shouldn’t have received a 1099 form from the company. When the IRS get’s involved, it’s super important to have everything you need all together in one place, which brings me to the next point.
Keep Your Records
Always keep your records! Print out all of your PayPal transactions, and highlight payments if you have to. Show the 1099 forms you were sent from the company, and match them up to the payments you received.
Also, write down every conversation you have with the IRS, and name who you spoke to. This is just to cover yourself. Normally, the IRS should be able to handle the situation from that point, but they make ask you to contact the company.
If you do have to contact the company, it may just be to get an amended 1099-Misc form. Once all of that has been completed, make regular check-ins with the IRS to make sure the matter has been resolved before the deadline to file your taxes.
What If It Keeps Happening?
If for any reason a company is:
- Unwilling to amend their form, or
- They tell you that they have to send you a form when you know they shouldn’t, or
- If they keep sending you one
it’s best to report them to the IRS. You can file a complaint using this form.
Now that you know what double income reporting is, check over your records and make sure it hasn’t happened to you in the 2016 year! Keep your records, tell clients when they make a mistake, and make sure you aren’t paying more than you should. Freelancing isn’t always fun and games, but you deserve the hard earned money that you make.