How A Decimal Point Nearly Ruined My 2012 Tax Return

by Elizabeth on February 6, 2012

A few of my friends on Facebook – mostly English majors – have been circulating a cartoon about the importance of the Oxford comma. The first time I saw it, I thought it was pretty funny; but it wasn’t until a decimal point – the equivalent of punctuation in the world of finance – almost single-handedly destroyed my financial stability that I really took notice.

As a freelance writer and digital media research analyst (that’s a fancy term for “number cruncher”), I don’t receive a W-2 from my employers. In fact, they’re not even my employers; I intermittently call them project coordinators or contractors. They’re the people and companies who hire me to work for them on a per project basis. Instead of a W-2, they send me a 1099 form at the end of the tax year; in fact, if you do work totaling more than $600 during the year from any single company or individual, you should also receive a 1099. This form, I would argue, is just as – if not more – important than a W-2. Why? Because as a freelancer, I don’t pay my taxes throughout the course of the year. Instead, I set aside roughly 30 percent of my freelance income for the sole purpose of paying my taxes.

I had done all the math for my tax return long before my 1099 arrived in the mail (your project coordinator should have already mailed it out; federal law requires these forms hit the post no later than January 31). Since my husband and I file jointly and earn a combined $64,000, we fall into the 15 percent tax bracket. (If you don’t know your tax rate, go ahead and check out the 2012 federal tax brackets here.) Additionally, because I am an independent contractor, I must also pay my yearly Medicare and Social Security taxes in one lump sum – that’s another 2.9 and 10.4 percent, respectively. My gross income for 2011 was just shy of $20,000 – so I thought the $6,000 I’d saved would cover my bases.

That is, until my 1099 showed up in my mail box.

Apparently, someone in the finance department at one of the companies I contract with made a mistake that’s the accountant’s equivalent of leaving out the Oxford comma: they moved the decimal point in my gross income. I expected to see $19,615.75 in Box 7 of my 1099, but was astounded to see this instead:


Yes, folks, apparently I became a millionaire overnight.

At first, I found the oversight funny. My husband and I joked that we should frame the erroneous tax form for posterity. Then we wondered whether we should rush to our bank and use the document to prove we have enough income to qualify for the home loan we’re after.

Then, we got serious.

An error on your 1099 – or on your W-2, for that matter – is really no joke. Because your employer, or in my case, the contracting company, reports this income directly to the IRS, any mistakes could absolutely kill you financially. Individuals, heads of household, and married couples filing jointly who earn more than $388,000 fall into the 35 percent tax bracket. In my case, it would mean the difference between a $6,000 tax bill (actually, because of itemized deductions and my husband’s withholdings through his traditional job, we’ll owe just a fraction of that) and – get this – a bill for nearly a million dollars.

Since I know I’m not part of the one percent (sorry, I couldn’t resist), I made haste to get the error fixed. Within 48 hours, I had a .pdf copy of my corrected 1099 with the now paltry gross income of just $19,615.75 in Box 7.

I’m not be a millionaire any more, and – at least in this case – I’m glad.

{ 5 comments… read them below or add one }

Shaun @ Money Cactus February 6, 2012 at 10:48 am

Ha! nice effort. I agree with your husband, frame it – then use it as inspiration for the future 😉


Shaun @ Smart Family Finance February 7, 2012 at 3:25 am

Yikes. I’m sure getting a 1099 when the 7 figures is correct has a much better feeling than when it is an error.

What a hassle.


American Debt Project February 13, 2012 at 6:54 pm

I liked how you guys thought about going to the bank to get approved for the home loan…totally something I would have thought about too!


My University Money February 14, 2012 at 1:45 pm

That’s crazy. I have my own IRS saga coming up as a Canadian who was born in the USA. Apparently the USA is the only country in the world that taxes based on citizenship so I need to file in the USA even though I’ve never worked a day of my life there, nor ever resided there. Death and taxes right?


Elizabeth February 15, 2012 at 7:11 pm

What? That’s crazy! I’ve never heard of that, but I can totally see the USA doing something like it.


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