Yes, mystery shoppers pay taxes like everyone else! When mystery shopping, you will most often work as an independent contractor. That means that the companies paying you don’t withhold income taxes, Social Security taxes or Medicare taxes. You are responsible for making sure your taxes are paid. In general, the fees you receive for mystery shopping are taxable as ordinary income, and are subject to federal income taxes, state and local income taxes, Social Security taxes, and Medicare taxes.
The good news is that when you are a contractor you are treated as a small business and you can deduct certain expenses. These may include postage, mileage and car expenses, travel, office equipment, computer and Internet fees, and perhaps even some purchases made while you are mystery shopping. You might qualify to deduct some of your housing expenses if you have a home office.
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I recently got an email from a shopper that said in part:
You should have received all of your 1099s from mystery shopping companies but remember that (1) you can file your return without any 1099s as you are not required to send 1099s with your tax return and (2) even if you don’t get a 1099 you still must report your income.
The end of the year is a good time to get things in order and start pulling together the records that you will need to file your tax returns. And even at this late date, there are things you can do to save money on your taxes this year, or plan for next year’s tax return.
Most people are familiar with how income taxes work when you are an employee. Your employer issues paychecks to you showing your gross wages or salary, the amounts deducted for Federal Income Tax, Social Security tax, Medicare tax, and any state or local taxes. You receive the net amount of your wages less the amount withheld for taxes. Each year you file a tax return where your actual tax is calculated, and you pay any additional tax owed or get a refund if too much was withheld from your paychecks.
If you pay quarterly estimated income taxes, remember that your fourth-quarter estimated tax payment (using form 1040-ES) for 2009 is due on January 15, 2010. You may delay making this payment until February 1, 2010, if you file your 2009 return (Form 1040) and pay any tax due by February 1, 2010.
As independent contractors, mystery shoppers get to deduct reasonable and necessary business expenses. That can mean anything from pens and notepads to ink and toner, cell phones, computers and other supplies and equipment. Tax deductions can also include educational expenses, such as books and courses.
In 2009, the Obama administration decided to try to stimulate the economy by giving people more money in their paychecks. The Internal Revenue Service (IRS) adjusted the schedules employers use to withhold taxes from employee pay. The idea was that with more money in their paychecks, people would spend more and that would help get the economy back on track.