Tax specialists agree that more guidance is needed. “One issue is whether the people performing the services are truly independent contractors or should be treated as employees,” Smith said. “The W-2 system of reporting and withholding causes far fewer concerns to the IRS regarding under-reporting than self-employment.”
“Contractors need correct 1099-MISC forms, yet many businesses that have a responsibility to provide the forms are undereducated about the correct way to report the earnings to the IRS and do not seek professional help,” Etter said. “One major area of misunderstanding is whether reimbursed expenses are to be reported on the 1099-MISC.”
A contractor may earn $1,000 and be reimbursed $500 of verified travel expenses, for example. The 1099 could state either $1,000 or $1,500, depending on how the issuer reads the instructions. “Since many businesses are still not in compliance with the 1099 issuance policies it’s difficult for a contractor to even collect all the necessary 1099 [information] in time for their return,” Etter said.