Have you received a 1099 tax form? Don't ignore this

Have you received a 1099 tax form? Don't ignore this potentially troublesome little postcard!

Tax time is upon us, typically not anyone's favorite time of year. Unless you can file using the 1040-EZ tax form, facing the now magazine-sized 1040 instruction booklet brings out the smidgen of procrastinating tendencies almost everyone possesses, no matter how selectively applied. The yearly tax filing will exact a desire to procrastinate in the staunchest of ultra organized of people. With all the forms, schedules and worksheets, it's no wonder. Here, we discuss some points you may not be aware of regarding the 1099 tax form.

1099 tax status is reserved for people who work under contract, considered a work for hire and are not permanent employees. If you enter into a contract with a company which you've landed yourself, you'll get a 1099 tax form at the end of the year. While taxes are usually not deducted, you are still responsible for paying taxes on your income come tax time. The exception is if you contract through an agent. In this case, you become an employee of the agent, who issues your paycheck and deducts taxes.

The 1099-G tax form may be more familiar. This type of 1099 tax form is issued by the state if you have received unemployment during the current tax year. Most states give you the option of having taxes deducted from the weekly unemployment check so that you're not faced with a balance due when you file your tax return.

One problem here is that your unemployment check may not be sufficient to meet your monthly obligations, so by opting to not have taxes withheld, you may avoid one quandary now and have a worse case at year's end.

Some people don't take the 1099 tax form seriously, thinking it's only the W-2 that goes into the IRS database and that the 1099 is some general memo to be filed and forgotten. True, this form is clearly marked with a note that advises you that this income is reported to the IRS and must be included on your tax return as taxable income. Perhaps it's just wishful thinking, but you must regard the 1099 tax form just as you would a W-2. If you don't include 1099 income, the IRS will take note! Your tax return will be rejected, delaying any refund you might have coming, as well as opening yourself up to a penalty. You may also find that your future tax returns are flagged for special scrutiny next year, perhaps for years to come.

If you receive unemployment, or, in some states, a state tax refund, you'll get the 1099-G. Many people are misled, thinking that because they paid taxes on the income earned which qualified them to receive unemployment, or a state tax refund, this would amount to double taxation, leading them to not include this income. What you may not realize is that when taxes are deducted from your paycheck, you pay into disability, while the employer pays the unemployment taxes. This means that unemployment is considered taxable income. Oh, for a simpler world!

So, don't ignore that seemingly meaningless postcard contained on the 1099 tax form. If you got one and tossed it, contact the state agency of issue and get a replacement! If you've already filed without this data, you'll want to file an amended return to stave off trouble. No one wants trouble with the IRS!