Tax Implications of Paid Surveys and Other Forms of Online Income

by Spencer Mitchell on March 28, 2013

So, you’ve worked hard and made some money from paid surveys. Wonderful!

But what’s this in the mail… a 1099?

Uh oh – Uncle Sam is coming for his cut. Making money online is great, but you must know that the government wants their cut, and they are going to make sure they get it. You should be aware that money earned online is treated as a source of income. This means that you are liable for all federal, state, and local taxes on that money, just like a part-time job. If you have a normal full-time job, this extra income may push you into a higher tax bracket and put you on the hook for more tax money.

If you made money this year from surveys for money, you should be aware of the potential tax implications.

The W9

Many companies (including Swagbucks) will make you fill out a W-9 before they start paying you for taking online surveys or working online. This W-9 will contain basic information such as your Social Security Number, address, phone number, full name, etc. The company will then keep track of all money paid over the course of the year and report it to the IRS. At tax time, they will then send you a 1099, which you will have to report as income.

Tax Considerations For Money Made OnlineThere is an income threshold on this, however. If you made $600 or less, you will likely not get a 1099 and will not be required to report the income. Therefore, if you took a few paid surveys online and did not get any tax information from the panels you belong to, double check to see how much the company paid you. If it was under $600, then there’s no need to worry. The IRS likely will not receive information about these earnings and, if they do, they will not do anything with the information. The government basically allows you $600 free dollars  per year. And if you don’t exceed that, then you have nothing to worry about.

Getting a 1099 Form

If you do exceed the $600 income level, you can expect to have a 1099 mailed to you by the end of
January. This will have your earnings statement on it with the amount of income the company expects you to report (this is very similar to a W-2 form). Like a W-2, you will need this form to complete your taxes. So, if you have a full time job plus a side job working online, you will need both your W-2 and 1099 (likely a 1099-MISC). Here is what a 1099 looks like:

1099 Form

Do not file your taxes before having both of these documents. If you do, you’ll need to go back and amend a previously filed return. This is not especially difficult, but it’s much easier to do it right the first time than having to go back and correct your mistakes.

Both the W-2 and 1099 do the same thing (report income) but there are a few extra steps with a 1099. Because this is likely non-employee compensation, you will have to fill out an extra form to assign yourself a job description and/or company for your independent business (you do not need to create an LLC or otherwise incorporate. The IRS just wants to know the type of work you are doing and why you are being paid for it. If, however, you do have an LLC and the independent contracting money is being paid to the corporation, you will want to talk to a tax professional before filing).

From there, the money will be treated just the same as it will from your regular employee compensation.

Paying Taxes on your 1099 Income

One major problem with making money via a 1099 is that there’s no withholding taking place when you get paid. Therefore, if you are making money online to supplement your normal day job, be prepared to take a sizeable tax hit if you have no other deductions. If you are a single person with no kids and you don’t own a home, you’ll likely have little in the way of deductions. Therefore, you should begin preparing for this tax hit long before April 15. If, for some reason, this extra income should dry up or some unprepared expenses pop up, there can be serious problems with the law.

So, you may be thinking: “I just won’t file me 1099 and just pretend that I never got it.” This is a bad idea. Since the IRS knows what your total income should be, it will set off warnings in their computer system if the numbers don’t match. Then the IRS can send you a notice that you owe back taxes plus a penalty. Since the IRS uses computer programs to catch irregularities regarding reported income, it is highly unlikely that unreported income from a 1099 will go unnoticed. And if you get flagged for an audit, things will be even worse because the IRS can go back several years. If they find more irregularities in your tax filings, you could be on the hook for more in civil penalties and even may some criminal ones.

Get Advice from a Tax Professional

Making money online is a great way to supplement your income, but be sure you fully understand the tax implications before making too much money. The worst thing that can happen is to take an unexpected tax hit and then suddenly have no way to pay for it. But with a bit of planning and education, you can comfortably pay off any taxes while enjoying the money you earn.

While I tried my best to give you accurate information here, I’m by no means a tax professional. If you have questions about taxes and paid survey income, talk to a licensed tax professional.

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