Well, it’s that time again. By now you should have received 1099s from any mystery shopping companies that paid you more than $600 last year. Every year I get questions from secret shoppers about 1099s, so here are the answers to some of the questions I receive most often.
When will companies send me 1099s?
Companies are required to send a 1099 when they pay a contractor at least $600 during the tax year. The information is also provided to the Internal Revenue Service. Forms are supposed to be mailed by January 31st each year.
Does that mean I don’t have to pay taxes on amounts under $600?
In general, you are required to report all of your income and pay taxes whether or not you received a 1099 form. Of course, as an Independent Contractor, you will also deduct all of your reasonable and necessary costs of doing business as expenses. That means that you do not pay taxes on the gross amount you received, but on your profit after expenses have been deducted.
Let’s say you received $17,597 from various mystery shopping companies over the course of the year. Some of them may have paid you a couple hundred dollars each and a few may have paid a few thousand dollars each. Of the total amount, $8,602 represents reimbursement of required purchases. You had expenses (e.g., mileage or car expenses, Internet access, educational materials, equipment, supplies, home office, etc.) of $4,409. That means your taxable income from mystery shopping would be:
$17,597 – ($8602 + $4409) = $4,586 profit
That may not sound like much profit, but remember that you got to keep those required purchases and your expense deductions may help to subsidize expenses you would have even if you were not mystery shopping. For example, you would probably pay for Internet access even if you were not mystery shopping. Because you use the Internet for your business, you may deduct at least a portion of your monthly fee for Internet access.
Do 1099 amounts include reimbursements and expenses, or just fees?
That depends. Most companies only issue 1099s for fees; however, some companies will include reimbursements for purchases and other expenses in the 1099. It doesn’t really matter what they report in the 1099. Your taxes are the same. You report your gross income, deduct expenses and pay tax on your net profit.
What does matter is that you show at least as much income on your Schedule C as was reported on the 1099s. The IRS checks the totals of 1099s for your tax ID number against the gross amount of income you report.
What if the amount of the 1099 doesn’t match my records of what the company paid me?
It is not unusual for the amounts to be off. The mystery shopping company may have issued a payment in late December, but you didn’t receive it until January. They included it in your 1099 for last year, but you are not counting that income until this year. (That is common when you are reporting on a cash basis. Don’t worry about it, as long as you are consistent from year to year.) Or there may be some other reason why your records don’t match exactly. Unless the difference is substantial, just report what you actually received. If there is a big difference, contact the company for an explanation and a corrected 1099.
What should I do if I do not receive a 1099?
You can contact the company to ask if a 1099 was issued, and verify that they have your correct contact information. Because you do not have to send the 1099 in with your tax return, you can file your tax return even if you do not receive an expected 1099. Remember, many companies will not send you a 1099 because they did not pay you at least $600.