Many people misunderstand what a Form 1099-MISC denotes and who receives it.
A person who is considered an employee of a company -- whether salaried or paid by the hour -- will receive a Form W-2, which shows how much money has been withheld throughout the year for federal, state, Social Security and Medicare taxes. Such a person will be responsible for paying half of the payroll taxes due based on his taxable income. His employer withholds and pays the other half. For 2012, the total amount due is 13.3 percent, down from 15.3 percent as a result of Congress’s economic stimulus plan.
For the income reported on a Form 1099-MISC, however, no tax has been withheld by the party that paid the self-employed individual for work performed. The self-employed person is responsible for paying the full amount of payroll taxes on the amount listed on the Form 1099.
“The 1099 form by itself is nothing,” said Jensen. “A 1099 means you’re liable for self-employment tax.”
Some people mistakenly believe that if they receive a Form 1099, it does not necessarily mean the IRS received a copy, Zinman said.
That scenario, however, is highly unlikely, he said. “If you get it, the IRS got it,” he said.
Similarly, people erroneously believe that if they did not receive a Form 1099, they don't have to report the tax. The IRS, Zinman says, does not care whether you received your Form 1099. If you received untaxed income, you must report it. In fact, beginning in 2012 (for the 2011 tax year) businesses and corporations must respond, via a line-item question on their tax forms, whether they paid miscellaneous income during the year.