What exactly is that 1099-MISC form you received?
The IRS requires any person or business who makes certain types of payments to report them on a 1099-MISC form to you and the IRS. Basically, the 1099-MISC form reports the total amount of payments you receive from a single person or entity during the year you've provided services to them. This form covers a wide range of payments you could receive, but the more common use of the form is to report your earnings when you work as an independent contractor - such as a yoga or fitness instructor.
What do all the boxes mean?
Although there are several boxes on the form let's just review the ones commonly relevant to yoga and fitness instructors.
Recipient's Taxpayer Identification Number (TIN)
For your protection, the form may show only the last four digits of your social security number, individual taxpayer identification number, or employer identification number (EIN).
May show an account or other unique number the payer assigned to distinguish your account.
Box 3. Other Income
Other income of $600 or more required to be reported on Form 1099-MISC that is not reportable in one of the other boxes on the form.
Box 4. Federal Income Tax Withheld
Shows backup withholding.
Box 7. Nonemployee Compensation
Shows non employee compensation. You received this form instead of Form W-2 because the payer did not consider you an employee and did not withhold income tax or social security and Medicare tax.
Boxes 16–18 State Information
Shows state or local income tax withheld from the payments. These boxes may be used by payers who participate in the Combined Federal/State Filing Program and/or who are required to file paper copies of this form with a state tax department
What to do with the 1099-MISC?
As an independent contractor, you report all earnings on your income tax return just like an employee does, but you do it in a different way. If your work is sporadic and generally not your main source of income, then you can just include the payments in “other income” on the first page of your tax return. But, if you work as an independent contractor for substantial periods during the year, then the IRS will treat you as self-employed. Self-employed taxpayers must report 1099-MISC income on a Schedule C attachment to their tax return. Keep in mind that you are also liable for Social Security and Medicare taxes, which you calculate on Schedule SE and attach to your return.
Where do I learn more about the 1099-MISC?
Check out these helpful publications from the IRS: