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Taxes
Are You Paid in Cash? You Must Still File a Federal Tax Return

If you are self-employed, paid in cash, and make a net profit of $400 or more in one year, you are required to file a federal tax return. Failure to report cash income may result in penalties and fines and prevent you from getting tax credits.

Form 1099-MISC

The person who paid you may issue a Form 1099-MISC. This form identifies who you are, how much you were paid, and when you were paid. You and the IRS may both receive a copy. The form is required when someone is paid $600 or more.

Even if you did not receive a 1099-MISC, you should still file a tax return

Filing taxes on cash income is a two-step process:

  1. You should pay estimated taxes during the year. This means that you have to guess how much you will earn and pre-pay the appropriate amount of tax about every three months. Use IRS Form 1040-ES to do this. This form has detailed instructions and a worksheet to help you calculate your estimated taxes. The form includes four payment vouchers. Each time you send an estimated payment to the IRS, include one of the vouchers. The form also tells you when you should make payments.

  2. At th​e end of the year, file the traditional IRS Form 1040 Individual Tax Return and attach Schedule SE. There are two versions of the SE form—a shorter and a longer version. If your total income is less than $110,000, complete the shorter version. The IRS will then compare your Form 1040 to Form SE to ensure you have paid the correct amounts.

Free tax preparation help

There are many resources to help you prepare your taxes for free. You can find these resources at Free Tax Return Preparation for Qualifying Taxpayers (from IRS.gov). All the forms mentioned in this article are available at the IRS website, or by calling 1-800- 829-3676.

For any questions or help with any of the above, contact LSNJ’s Tax Legal Assistance Project by calling LSNJLAWSM at 1-888-LSNJ-LAW. You may also apply online.

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12/12/2018