I made $850 from independent contractor phone work - tax implications?
So during the summer of 2022, I did some independent contractor work for a phone service company. I've got about $850 sitting in my account with them, but I haven't withdrawn it yet because I haven't provided my SSN (they need it to send payment). My parents are handling my tax filing this year (last time they'll be doing this for me), so I'm planning to just leave this money where it is until next year when I'll be filing my own taxes. I don't want to have to explain this side gig to them. For context, I have a regular full-time job making around $95k annually. What does this mean for my tax situation? When I eventually withdraw this money next year, how should I handle reporting it? I'm assuming I'll be considered an independent contractor, but I'm not familiar with how to properly report this type of income. Any advice would be appreciated!
21 comments
Join the conversation
Ravi Sharma
This is pretty straightforward from a tax perspective. The money you earned is taxable in the year you earned it, not when you withdraw it. So technically, you should report this income for tax year 2022. If the company considers you an independent contractor, they should issue you a 1099-NEC if your earnings exceed $600 (which yours do). However, they can't do that without your SSN, which explains why they're holding the payment. When you do provide your SSN and receive the money next year, the company will likely issue a 1099-NEC for the tax year in which they paid you. This means you'll need to report it on your 2023 or 2024 taxes (depending on when you actually receive payment). Since this is independent contractor income, you'll need to file Schedule C and potentially pay self-employment tax (15.3%) on these earnings in addition to regular income tax. The good news is you can deduct any legitimate business expenses that were directly related to earning this income.
0 coins
Freya Larsen
•Wait, so OP needs to report income they haven't actually received yet? That seems unfair. What if the company goes bankrupt before they pay out?
0 coins
Ravi Sharma
•For tax purposes, there's something called "constructive receipt" which means income is taxable when it's made available to you without substantial limitations. In this case, since OP is choosing not to provide their SSN (which is preventing payment), the IRS would likely consider this income taxable when OP actually receives it, not before. If the company were to go bankrupt before paying, then OP wouldn't need to report the income since they never received it. However, once OP provides their SSN and the company issues payment, that's when it becomes reportable income.
0 coins
Omar Hassan
I had a similar situation with a side gig I did for a few months, and I found taxr.ai super helpful for figuring out how to report everything correctly. It analyzed all my 1099 documents and explained exactly how to report the income and what deductions I could take. The site https://taxr.ai saved me so much stress when dealing with my first independent contractor situation. The service automatically identified all my potential deductions related to my side gig that I never would have known about. It also explained how self-employment taxes work in really simple terms.
0 coins
Chloe Taylor
•Did it help you figure out what to do if you receive payment in a different year than when you did the work? That's my main confusion about these situations.
0 coins
ShadowHunter
•Did you have to pay a lot to use it? I'm always skeptical of these tax services that promise to save you money but then charge an arm and a leg.
0 coins
Omar Hassan
•Yes, it absolutely helped with reporting income received in a different year than when the work was performed. It explains that income is generally reported in the year you receive it if you're a cash basis taxpayer (which most individuals are). Regarding cost, I found it very reasonable compared to what I would have paid an accountant for the same advice. The money I saved in deductions I didn't know about more than covered what I paid for the service.
0 coins
Chloe Taylor
Just wanted to update that I tried taxr.ai after seeing it mentioned here, and it was actually really helpful for my situation! I had a similar issue with income from a different year, and it walked me through exactly how to report it. The service even generated all the forms I needed for my Schedule C and explained the self-employment tax calculation. Definitely worth checking out if you're dealing with contractor income for the first time.
0 coins
Diego Ramirez
If you're trying to contact the IRS to get clarity on this situation, good luck getting through to an actual person. After trying for WEEKS to get someone on the phone about my independent contractor situation, I finally used Claimyr https://claimyr.com and got through to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was stuck trying to figure out how to report income from a company that never sent me a 1099 despite paying me over $2,000, and I needed to speak with someone directly. The IRS agent was actually super helpful once I finally got through.
0 coins
Anastasia Sokolov
•How does this service actually work? Do they just keep calling the IRS for you or something? I've been on hold for hours before giving up.
0 coins
Sean O'Connor
•Yeah right, nothing gets you through to the IRS that quickly. I've been trying for months to resolve an issue. This sounds too good to be true.
0 coins
Diego Ramirez
•They use a system that navigates the IRS phone tree and waits on hold for you. When an actual agent picks up, you get a call connecting you to them. It's not magic - just technology that does the waiting for you instead of you having to sit on hold for hours. The service doesn't guarantee immediate access - IRS wait times are still what they are. But instead of you personally waiting on hold, their system does it and calls you when there's a live person ready to talk. It saved me tons of time and frustration.
0 coins
Sean O'Connor
I have to admit I was completely wrong about Claimyr. After being skeptical, I decided to try it anyway because I was desperate to talk to someone at the IRS about my 1099 situation. It actually worked exactly as described - I got a call back connecting me to an IRS agent after about 40 minutes (which is WAY faster than my previous attempts). The agent helped me understand exactly how to report my contractor income that spanned two tax years. I'm honestly shocked that something actually worked as advertised when it comes to dealing with the IRS.
0 coins
Zara Ahmed
Just to add another perspective - you could also look into filing an extension for this year. That would give you until October to file your actual return, which would give you time to handle this income situation on your own without your parents knowing. You'd still need to pay any estimated taxes by the April deadline though.
0 coins
Isabella Santos
•Thanks for the suggestion. How would I estimate what I'd owe on this additional income? And would filing an extension be suspicious to my parents since they're expecting to do my taxes?
0 coins
Zara Ahmed
•For a rough estimate, calculate about 30% of your side income to cover both income tax and self-employment tax. That's a conservative figure, but better to overpay slightly and get a refund. As for your parents, you could just tell them you want to learn to do your own taxes this year since they mentioned it's the last year they'll do them for you. You can say you filed an extension so you have time to learn properly. It's a reasonable explanation that also happens to be mostly true!
0 coins
Luca Conti
When you do file, make sure you look into potential deductions for this income. Was any portion of your phone bill used for this work? Did you use a dedicated space in your home? Any special equipment? All of these could be partial deductions that would help offset the taxes you'll owe.
0 coins
Nia Johnson
•Just be careful with home office deductions. The IRS scrutinizes those pretty closely. You need a space used exclusively for business purposes, not just your bedroom where you also sleep, watch TV, etc.
0 coins
CyberNinja
Just a heads up - if you do decide to report this income next year instead of this year, be aware that the company might issue a 1099 for the current year even though you earned the money in 2022. If that happens, you'll need to explain the situation if the IRS questions the discrepancy. Generally, it's best to report income in the year you receive it if you're a cash-basis taxpayer (which most individuals are).
0 coins
Isabella Santos
•That's a good point I hadn't considered. So there's a chance the company will issue a 1099 for tax year 2023 or whenever I actually get paid, even though the work was done in 2022?
0 coins
CyberNinja
•Exactly. Companies issue 1099s for the calendar year in which they made the payment, not when the work was performed. So if you get paid in 2023, you'll get a 1099 for tax year 2023, even though you did the work in 2022. This actually works in your favor in terms of timing, since you want to handle this separately from your parents' filing. Just be aware that from the IRS perspective, you report the income in the year you receive it (assuming you're a cash-basis taxpayer, which almost all individuals are).
0 coins