You only need to fill out a W9 if you make over $600 a year
"How do I receive my Money Makers payments?
At the end of each month, we will calculate your total Money Makers earnings. If you have made $25 or more since your last payment, we will deposit your earnings into your PayPal account. If you have not yet made $25, we will hold your earnings until the next pay period during which you have accumulated $25 or more. Please keep in mind that it may take up to 30 days for the deposit to appear in your account. Also note that if you make over $600 for the year, you'll need to send a W-9 to email@example.com or fax it to (609) 543-0968"
nimase85 (rep: 16.1k) posted Jan 15, 2013
Taxpayers are legally required to report every last cent of their income, no matter how small. However, the only way the IRS normally knows about your earnings is through their mandatory reporting requirements on payers. Since the IRS doesn't have the capacity to deal with the amount of data they would receive if everyone paying anyone had to report every last cent, they set reporting thresholds for different types of payments. Banks, for instance, must report interest payments of $10 and up. General payments to non-corporate entities such as an individual have the $600 reporting requirement threshold.
That doesn't mean you're not legally required to report your less-than-$600 earnings on your tax return. It just means that the IRS won't have any direct knowledge of the payment. When you get a 1099 or W2, the IRS automatically gets a copy from the payer. In most cases, it come to them digitally, so their computers are ready to match up these statements with your tax return.
So if you don't report your income below the reporting threshold because you didn't get a 1099 form, there is very little chance that anything will come of it, but you are in fact breaking the law if you don't report all of your income. If for any reason you get audited by the IRS in the future, even for matters completely unrelated to your MM earnings, the presence of these transfers to your bank account might be discovered and create a problem you wish you never had. There's not a big chance of that. I'm just letting you know that there's a difference between what's legally required and what people commonly get away with.
I am not a lawyer or a professional tax preparer, but I owned a small business for some years, and I had lots of long, mind-numbing conversations with my professional tax preparer, and a lot of this has been etched in my memory.
I distinctly remember him telling me that the IRS requirement to report payments to any non-corporate entity over $600 not only applies to business payers, but to individual payers as well as well. That means that if you or I pay an unincorporated plumber, carpenter, auto mechanic etc, a total of $600 or more in a year, we are legally required to send that info to both the IRS and the recipient on a Form 1099! Obviously, we never hear of taxpayers being busted for this. Again, I suspect that it only becomes a problem if you somehow manage to draw undue attention from the IRS.
Even though a payer isn't REQUIRED to report your earnings below the mandated reporting threshold, that doesn't mean they can't VOLUNTARILY report it anyway. I once had a bank that did me that favor. Whenever you receive a 1099 or W2, that means that the IRS already has this info in their computers. Not accounting for it on your tax return is asking for trouble.
In most cases, income you earn on a 1099 would have to be reported as Self-Employment Income on Form 1040 Schedule C. You would also have to calculate and pay Self-Employment Tax on Schedule SE. You would not be able to use the short 1040 forms. If you use a professional tax preparer, you will be charged extra to complete these two additional forms.
fluffy (rep: 2.2k) posted Jan 17, 2013
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