By: Sentry Marketing Group

January 13, 2015

At most companies, mystery shoppers are considered independent contractors. At tax time, this means that there are a few extra steps shoppers need to take to make sure the appropriate taxes are paid on their earnings. At Sentry we always recommend that our shoppers turn to the experts to make sure this is correctly done. Here, we offer a few pointers to get you headed in the right direction.

As stated in Sentry’s Independent Contractor Agreement, each mystery shopper is responsible for reporting any income earned as a shopper and paying any taxes that may be owed.  If you’ve earned more than $600 with Sentry this year, you will soon be receiving a 1099 statement from us, which you will use in preparing your tax return.  However, you should be aware that current U.S. tax laws require anyone earning more than $400 in a year through self-employment (which includes work as an independent contractor) to report this income to the IRS and, potentially, to pay certain taxes on this income.  Every shopper, then, is responsible for determining the amount owed and submitting the necessary documentation.  Everyone’s circumstances are different, so we recommend that you visit the IRS’s Self-Employed Individuals Tax Center to help you figure out whether you owe any taxes on your secret shopper earnings and determine exactly what steps you need to take in this regard.  It can be a little complicated, so you may also wish to enlist the help of a professional in preparing your return.  Here are just a few of the things you will need to keep in mind:

Self-Employment Tax

There are two kinds of taxes to be paid on monies earned through self-employment:  Self-Employment Tax and Income Tax.  Self-Employment Tax is comparable to the Social Security and Medicare taxes withheld from, say, a weekly paycheck earned by an employee, who will have filled out a W-2 at the start of employment to determine how much should be withheld during each pay period.  They come back to you after your retire in the form of Social Security payments and Medicare coverage.  These taxes are not withheld from the pay of an independent contractor, who will have filled out only a W-9 providing information enabling the company enlisted his or her services to report required data to the appropriate government offices.  You will need to calculate the amount owed, if any, using the tools provided by the IRS.

Self-Employment income is reported using Schedule SE, which is to be filed with the regular tax form 1040.  According to the IRS guidelines, you cannot use form 1040EZ or 1040A if you are required to report self-employment earnings.

Income Tax

Income tax is sort of like the money the government charges you to be a citizen or to live in the United States and its territories.  This money comes back to you (in theory) in the form of government services, civil protections, etc.  Depending on the nature and amount of your self-employment earnings, you will need to file a Schedule C or Schedule C-EZ with your Form 1040 to report income and determine the amount owed for this tax.  The instructions for Schedule C and those found at the top of Schedule C-EZ will help you determine which form you should use.

Insurance

If you paid for medical and/ or dental insurance or qualified long-term care insurance for you and/ or your family, you may be able to deduct this amount from your taxable income.  There is a worksheet in the Form 1040 instructions to help you do this.  There is also a wealth of information on this topic in the Medical and Dental Expenses publication.  You should also take a look to see how the Affordable Care Act may affect what you owe.

Quarterly taxes

Those earning more than a certain amount from self-employment are expected to estimate the amount of taxes they will owe in the coming year and pay them quarterly.  Failing to do so can result in a fine or, at best, owing a substantial amount of tax at the end of a fiscal year.  To find out if you should plan to pay quarterly taxes for the upcoming tax year, check out the IRS website.  Quarterly taxes are paid using form 1040-ES (not to be confused with Schedule SE above).

There are a host of other factors that may also affect how you file your taxes, exemptions you can claim, etc.  The IRS’s “life events” page is a good place to start to determine what additional considerations you may need to take into account when preparing your return.  You can also use the IRS’s EITC Assistant to determine whether you are eligible to claim an Earned Income Tax Credit, a credit for those who worked but earned less than $51,567 in 2014.

Remember, taxes can be complicated, especially when you have more than one kind of income, so it can often be beneficial to consult a tax professional, especially if you have never filed a more complicated return.  Regardless, be sure to set aside plenty of time to do your homework on the IRS website, which provides a variety of tools and services to help you get your taxes filed correctly and on time.