Ask the taxgirl: Reporting Income Not on a W-2

Taxpayer asks:

Hi,

Just wondering if I have multiple jobs one year, can I not declare taxes if what I earn from each individual job is less than $600, or does what I make from all the jobs added together have to be under $600? And what if its at the $600 mark; does it have to be $599?

Thanks!

taxgirl says:

This is actually a pretty common misconception so let me see if I can sort it out for you.

You have to report all of your income, from whatever source, on your tax return unless it’s otherwise excluded. Income from jobs, whether it’s $10 or $10,000 has to be reported. There is no threshold amount of income for purposes of reporting on your end.

What is subject to a threshold is reporting from the person or company who is paying you for your services. With some exceptions, that amount doesn’t need to be reported to the IRS unless it is at least $600 for the tax year; at that point, the payor will issue you a form 1099-MISC. If they pay you $599, they likely don’t need to issue a form 1099 to you (again, some exceptions apply). That doesn’t translate, however, into a free pass on your end. You still have to report that income.

If it’s hobby or other income not related to a business, you’ll likely report it on Line 21 (other income). If it’s part of an ongoing business (for example, you’re an entertainer and these are payments from individual performances), you’ll report it on a Schedule C. On the plus side, if your gigs are part of a business, you can always claim related expenses on your Schedule C. If you poke around the blog, you’ll see some related queries about Schedules C and expenses.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! – On twitter at http://www.twitter.com/taxgirl and on Facebook at http://www.facebook.com/taxgirl

Comments

  1. Elizabeth R., EA

    It is one of my biggest pet peeves when people tell me that they are paid in cash so they don’t have to report it. I have no idea what can be done to close that part of the tax gap except for education. I don’t think that people always fully understand the correlation between reporting income and your future social security benefits either.

  2. Janice A.

    I agree Elizabeth, with respect to individuals this is one very unfair part of the tax system. For the record I am a small business owner for 40+ years. Individuals who pay properly on all their taxable income subsidize those who do not. I believe that a major percentage of those that receive any substantial quantity of their income in cash do not report it. That is except in cases where the IRS knows that certain vocations receive a definable percentage of their income as cash, such as tips in the service sector, those individuals must at least report a portion of this extra cash income. Of course I (and those of us who do not receive cash income) am prejudiced as I do not have a business that receives cash.

    There is a simple solution….completely dispose of the cash system. Of course all those who receive cash and do not report it will be objecting very loudly. All pieces are in place for such a transformation. Really, how many of us use cash to any great degree these days. I know there would be considerable issues and problems raised, but from those of us who do not receive considerable (non traceable) cash income I have a feeling there would be little objection.

    To go further, once that system was in place we could do away with the IRS, accountants, tax attorneys etc. (sorry Kelly). I propose that all money which changed hands would be taxed at a one rate. Let’s pick a number out of the sky, how about 2 percent. So Elizabeth your annual tax rate would be 2 percent of all money you transferred out of your possession from Jan 1 to Dec 31. PERIOD.

    AND it would not just be individuals that would be subject to this system, I am talking all money, all business, all takeovers. ANY transaction where money is exchanged would be taxed at 2 percent (or whatever percentage was required to equal current levels of US Treasury annual tax income). Someone who is good at economic figures could come up with the actual percentage required and my gut feeling is that it would be a very attractive rate indeed.

    Do I hear howls from big business, duh I think so.

    That’s it, no deductions, no tax returns, no tax code which equals no need for interpretation of “tax code”, no tax trials. No need for the gov to legislate new (and more, and more, and more) tax code, there would not be any. Just debit cards or bank accounts, which already are attached to your SS or business EIN number, that track total funds you expend every year. The 2 percent tax could be sent on to the US treasury immediately upon completion of a funds transfer transaction. Yes the states will want their cut, so for arguments sake they would get 2 tenths of a percent, or whatever, sent immediately to their coffers. Done, finished, over.

    People who are engaged in illicit, currently untaxed, endeavors would of course howl for two reasons. 1. They too would have to pay their fair share and the documentation of their income stream could be slightly incriminating. Sooo…the final catch to getting this system approved by the people (though likely the people would be the last to be consulted in the matter), would be that no governing parties would have legal right to examine, in any fashion, the source of a tax remitter’s funds flow………..God forbid!

    Maybe I have left out a valid consideration in this matter, if so I am all ears. However I believe this would almost completely even the tax field for all taxpayers. If everyone was taxed equally, the percentage of the “take” from the middle class would be substantially reduced, IMHO.

  3. Author
    Kelly

    Janice, the problem with your scenario is that it would *never* happen. You’re going down the flat tax road (more or less) and that won’t happen in this country any time soon because as much as folks claim to want an even playing field, they don’t really. Do you really think folks who recently bought expensive houses will part with their mortgage interest deductions? You think those who get the EIC will go quietly? Seniors and the disabled are willing to give up their extra deductions? The current system offers up *a lot* of breaks to a lot of folks who have lobbied pretty heartily. It won’t go away any time soon.

  4. Janice A.

    Kelly, excluding the EIC issue, which could easily be solved at the end of the year by a credit for those who could automatically qualify under this system. Agreed it is a very simple form of a flat tax. Yes I believe, based on my simple proposal, the actual annual tax paid by the majority (majority = largest number of taxpayers AKA the masses AKA “THE PEOPLE”) would be so little compared to current levels, there would be minuscule complaints from the majority. I am talking about simplicity and fairness for THE PEOPLE not riches and special privilege for the financial elite class.

    The question should not be if it would *ever* happen. Lots of things will never happen with the “special interests” system that is currently in place.
    We don’t need *a lot* of “breaks” Kelly, we need to be taxed equally, reasonably and fairly. Currently the score on all three of those criteria is extremely dismal IMHO!

    See :
    “The Financial Elite Have Been on a 30-Year Onslaught Against the Middle Class”
    http://www.alternet.org/module/printversion/146554

Leave a Comment