Does income for the year include money earned but not paid during the year

[JulieS]

It depends on whether you are a cash basis taxpayer or an accrual basis taxpayer. 

Most individuals are cash basis taxpayers, which means you report income when it is received and expenses when they are paid. If you are a cash basis taxpayer, the income will be reported in 2022.

Accrual basis tax payers report income when the invoice is issued and report expenses as soon as they are billed. If you report your business on an accrual basis, the income would count for 2021. 

[meyermihm]

What if a company sends you a 1099-NEC for a payment it made to you in late December 2021 but you did not receive that payment in the mail until Jan. 10, 2022? Do you have to report that payment as 2021 income or can you report that on your 2022 tax return? Will that IRS give you a hard time because that 1099-NEC for 2021 listed the payment?

[meyermihm]

I received a freelance payment around Jan. 10, 2022 for work done in December 2021. The company listed this payment on the 1099-NEC for 2021. Do head off the hassles you mention, should I ask the company to issue a revised 1099-NEC to list the payment as a 2022 payment? Are they allowed to do that? If not, how certain will it be that the IRS will pay attention to a note I attach explaining this on my 2022 return? Will the IRS hassle me over my 2021 return that does not report this income even though the 1099-NEC reported it? Thanks.

[DaveF1006]

Yes. If your business operates under the cash basis of accounting, technically this income is 2022 income and not 2021.  With this said, you can ask the company to send you a corrected 1099-NEC.

If they refuse, I would advise you to report your 1099-NEC as is to avoid any future misunderstanding s with the IRS. IRS has a very good matching system that will match income reported on your return with information recorded on tax forms such as W2's and 1099's. You will wish to avoid any repercussions that might occur over a month's worth of income. 

[VolvoGirl]

What you can do is report the 1099NEC on Schedule C for 2021 income.   Then offset it with a Misc Expense saying income received in 2022.  So it will zero it out.   

Then next year add it as cash income.  

[meyermihm]

Even though the IRS Publication 525 specifically says this? The company won't reissue a revised 1099-NEC:

For example, if the postal service tries to deliver a check to you on the last day of the tax year but you aren’t at home to receive it, you must include the amount in your income for that tax year. If the check was mailed so that it couldn’t possibly reach you until after the end of the tax year, and you otherwise couldn’t get the funds before the end of the year, you include the amount in your income for the next tax year.

[rpgd]

I have a reverse situation. I've always operated my service using an accrual basis, so I base its income on when I invoice a client. However, I have a client who sent a 1099-NEC and they based it on the date paid.

I have an invoice for services from December 2020 that I already included in my 2020 Schedule C. But now, for 2021, I realized that they reported it on their 2021 1099-NEC.

How should I note to the IRS, using TurboTax Home & Business, the discrepancy?

[Vanessa A]

You do not need to enter the 1099-NEC on your return.  Since you have your own books that you keep track of all of your income and expenses on, the 1099-NEC's do not have to be reported separately as long as the income is accounted for.  When you go through the business info, it asks if you use cash or accrual method of accounting, this will easily explain any discrepancies in your 1099-NEC's received and your income reported.  

There is not a way to report that you are not going to report that 1099-NEC on your return this year because it was included in income last year. 

If, for some reason, you would happen to receive a letter at some point in the future from the IRS stating you understated your 2021 income, you would just respond as such. Keep the form for your records along with the statement that it was for the previous year.  

[burger0980]

I started a job in late December, the employer reported the income on 2023 W2, but I did not recieve the income until January 2024. I assume I report the income on my 2024 return, but the W2 is from 2023. How do I report it without a W2?

[DoninGA]

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@burger0980 wrote:

I started a job in late December, the employer reported the income on 2023 W2, but I did not recieve the income until January 2024. I assume I report the income on my 2024 return, but the W2 is from 2023. How do I report it without a W2?

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You have to enter the 2023 W-2 you received on your 2023 tax return.  The 2023 W-2 cannot be entered on the 2024 return next year.

[burger0980]

Thanks for the reply. I report for 2023 although my paycheck was dated January 5, 2024?

[DoninGA]

@burger0980 Correct.