General Tax Reporting Regulations

• The IRS requires every individual to report and pay taxes on all income earned throughout the year. The Internal Revenue Code defines "income" as compensation "from whatever source derived." Therefore, any income earned, including amounts listed on a 1099 form, must be reported to federal, state and local taxing authorities.
  
  

Employer Reporting Requirements

• If an individual or employer pays you more than $600 in any given year, they are required, by law, to complete a 1099 statement and submit it to the IRS. If a 1099 is submitted on your behalf, you will receive a copy of the statement at the end of the year. If you fail to report income from a 1099 statement that was filed with the IRS, you may risk being audited or having to pay a penalty on back taxes.
  
  

Additional Tax Burden

• If you receive a 1099 form at the end of the year you will be considered an independent contractor rather than an employee. Employees have the benefit of having their employer pay half of their Social Security and Medicare taxes. Independent contractors do not have this benefit and are therefore responsible for paying an additional percentage of their income.