US tax question: Do you list Upwork income as 1099-NEC income? Who do you list as the Payer?

[ebwinter]

Hi all,

I'm getting ready to file my taxes for the first time since switching to freelancing as my main source of income mid-way through last year. The tax program I'm using (and the instructions on the IRS website) seem to think that I should have received a 1099-NEC, since I earned more than $600. Upwork's help center, confusingly, both confirms that this is how non-employee income should be reported AND states that they do not do so.

So I'm curious what more experienced US freelancers have concluded is the best way to handle this.

Do you report your Upwork earnings as 1099-NEC earnings and just fill in as much information as you can despite not having a 1099-NEC? If so, do you list earnings from each client individually as a payer, or only put Upwork and list all Upwork earnings?

Or do you report them under "Business sales not on a 1099-NEC, 1099-MISC, or 1099-K," since they are services provided that aren't reported on a 1099-NEC etc.? 

Or something else?

[wlyonsatl]

Elizabeth W.,

For tax year 2020 you (and the IRS) will receive a 1099-K only if you had total client billings of more than $20,000 and more than 200 transactions during the year.

If you do not meet both of these criteria (which are changing for the 2021 tax year), you will have to go to your Reports/Transaction History/Download CSV (setting the Statement Period to 1/1/20 - 12/31/20), import that information into Microsoft Excel or another spreadsheet app and then manipulate the information to add up all your payments, fees, etc. for use in your tax filings.

[ebwinter]

Hi Will,

Thanks for replying. To clarify, I have already downloaded these reports and have accurate details about my earnings all ready to go in a spreadsheet. I am trying to understand how to enter them correctly and accurately in the tax forms and schedules, though.

I file my own taxes, and the interview in the software requires that I indicate what kind of 1099 I am entering information from, as well as the name and employer ID of the payer.

Since I don't have a 1099, I am uncertain which to choose, and I also don't know whether to list Upwork as the payer for all Upwork earnings, or list each client as a different payer.

Do you (or anyone else reading along) have any insight into this? How do you handle this yourself?

Liz

[wlyonsatl]

Hi, Liz.

Will your tax software allow you to ignore all of the 1099-related forms and enter your data directly in Schedule C?

https://www.irs.gov/businesses/small-businesses-self-employed/manage-taxes-for-your-gig-work

[ebwinter]

Will, that's a great question. The software I was planning to use (H&R Block) does not seem to provide that option. I'm starting to wonder if I need to look at different programs that do allow this or try slogging through the IRS forms myself.

However, I did discover today that there's a category within the H&R Block tax interview where I can enter any product or service sales not reported on a 1099. So I am guessing I am supposed to report my Upwork earning here rather than trying to "reconstruct" a 1099 I don't have. Looks like I was making an incorrect assumption about what the IRS required based on this particular tax filing program's wording. Does that make sense to you?

Thank you for taking the time to reply. I appreciate it!

[wlyonsatl]

I don't use H&R Block's software, Liz, but I'm sure they have it up to speed for gig economy filers like us.

Is there a help line, or can you search the software for Schedule C information?

I am not an accountant or tax professional, but I'd guess the non-1099 section they have may be for data that goes into the Schedule C, but you'd think they'd make that clear.

As long as you can enter your total Upwork billings (not the net amounts you actually receive) and your costs (Upwork's monthly and per client payment fees) that should work.

[ebwinter]

Hey Will,

Thanks so much! I think the pieces are fitting together for me now. I'll check with whatever support is available in program to confirm what I'm putting in is going where I think it is (into Schedule C). But the picture is much clearer now that I realize there's a non-1099 section in the H&R Block program for entering any freelance earnings that were not reported on a 1099. It was the mismatch between Upwork's statement about 1099-NECs and what I was initially seeing in the tax software for reporting options that had me so lost.

Here's hoping my confusion will be useful for someone else! Thanks again for your thoughts.

[wlyonsatl]

Good luck!

[ebwinter]

Joanne Marie, if you could provide some guidance for the others of us who are wondering about this same question, that would be helpful. The information I'm seeing from the IRS indicates that I need a 1099-NEC in order to file my taxes, so I'm very confused about why Upwork's website states both that non-employee compensation should be reported on a 1099-NEC and that Upwork is not going to send us one. (https://support.upwork.com/hc/en-us/articles/211063958-Report-Income-from-Upwork)

[mtngigi]

Any and all forms needed for filing your taxes can be found on the IRS website, including 1099-nec.

https://www.irs.gov/forms-pubs/about-form-1099-nec

[ebwinter]

Hi Virginia,

Yes, I'm aware of this and have looked at the form on the IRS website. However, a 1099-NEC is a form filed by a client, not a form filled out by a freelancer, correct? 

I'm having a trouble understanding how my non-1099 information from Upwork fits into the existing filing  categories on the tax forms. I'm using an online tax preparation service (H&R Block) - or at least that has been my plan, as this is how I have filed my taxes every year to date. Maybe this is not an option for Upwork freelancers??

The tax interview asks you to indicate what kind of 1099 you are entering information from. If you choose 1099-NEC, it then wants you to provide a federal tax ID number for the payer. I, of course, do not have this for Upwork, since I don't have a 1099.

How have you handled this requirement? Do you list all Upwork earnings together, with Upwork as the payer, or list each client separately? What do you enter when asked to provide a federal tax ID?

I feel like there must be something I'm missing here, or that I'm making harder than it is. From everything I can see on the IRS website, it seems like either Upwork or clients should be providing a 1099 to freelancers who earn over $600. But other freelancers must be working this out somehow. I'm curious what approach you take.

[86f66610]

Elizabeth, did you ever get this resolved? I'm wondering the same thing. I have only 1 client on Upwork but they say that Upwork is technically the payer, not them. They sent me this: "When you pay your freelancer on Upwork, you actually pay Upwork Escrow Inc., which is our licensed escrow subsidiary. ... This means we (not you) are required to report the payments we remit to your freelancer to the Internal Revenue Service (IRS) on Form 1099-K, in accordance with IRS regulations." So I guess that means that UpWork should be listed as the payer...?

[mwiggenhorn]

I just show it as "miscellaneous income", no payer.  No problems.

[ebwinter]

Alyssa, sorry I was so slow in responding to this! I'm just getting started for this year.

Yes, I ended up doing something similar to Mary. I'm using TaxAct, and I entered it in the section for miscellaneous cash/check business income that was not reported on 1099s. From what I can tell, it seems to end up in the same "bucket" of Schedule C as the 1099s anyway.

[pgiambalvo]

Yep, me too. So far, no prison time.

[ebwinter]

I took a look at the 2021 instructions for Schedule C (https://www.irs.gov/instructions/i1040sc) on the IRS website, and I am even more confident now that we've got the right approach. The form does not ask you to separate out income from 1099s from other self-employment income; the instructions simply say

"Line 1: Enter gross receipts from your trade or business. Be sure to check any Forms 1099 you received for business income that must be reported on this line.

If you received one or more Forms 1099-NEC, be sure line 1 includes amounts properly shown on your Forms 1099-NEC."

So it looks like even though some of the tax filing programs separate out different types of business income, it's just to help you make sure you enter everything correctly; the IRS doesn't seem to care if it was reported to you on a 1099 or not.