How to Claim Income Under $600

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Unless specifically exempted from taxation by statute, you must claim all income on a return regardless of the amount.

Whether you’re a full-time self-employed entrepreneur or just do some freelance work on the side, you have to report every dollar you earn on a tax return. Companies and individuals who pay you at least $600 in a year for the services you perform will report your compensation on Form 1099-MISC. But even if you don’t receive a 1099-MISC, you still have to claim income under $600 on your taxes.

The 1099-MISC $600 Reporting Threshold

Not receiving a 1099-MISC doesn’t change the fact that all of the income you earn from self-employment activities is taxable and must end up on your return. The $600 threshold for nonemployee compensation is merely a 1099-MISC reporting requirement that the Internal Revenue Service imposes on the payer. In other words, charging a client $599 rather than $600 so you don’t receive a 1099-MISC doesn’t save you money in tax -- other than the savings from reporting one less dollar on your return.

Tax Return Filing Requirements for the Self-Employed

The IRS requires you to file a tax return in any year your net self-employment earnings -- the taxable amount after deducting related business expenses -- are at least $400. In contrast, a taxpayer who isn’t self-employed generally doesn’t have to file a return unless his total annual income is equal to or greater than the sum of the standard deduction for his filing status and one personal exemption -- two personal exemptions if filing jointly.

Claiming Income under $600 on C-EZ

Since your total nonemployee compensation for the year is under $600, you can generally report it on Schedule C-EZ rather than Schedule C -- the full-length version of the form -- if your deductible business expenses are under $5,000. The advantage of using Schedule C-EZ is that you only have to enter your gross receipts, subtract business expenses -- reported as a total rather than itemized by type of expense -- and compute your net profit. If you do receive any 1099-MISC forms for the year, include the amounts reported in box 7 in gross receipts as well. The net profit figure then flows to the Business income line of your 1040 and is ultimately included in your taxable income. (Refs 3 and 4)

Paying Self-Employment Taxes

One drawback of having to claim self-employment earnings is paying self-employment tax on it in addition to the income tax. To figure out how much you owe, the IRS requires you to prepare and file a Schedule SE attachment to your return. The self-employment tax will cost you 15.3 percent of your net profit and is comprised of a 12.4 percent Social Security tax and a 2.9 percent Medicare tax. And since you don’t have an employer who pays 50 percent of these taxes for you, approximately one-half of your self-employment tax bill is deductible as an adjustment to income on your 1040.


About the Author

Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.