I have not been paid by fotolia in 2011 and they sent me this 1099 form for 2011. I wrote to them and response received yesterday disappeared from my inbox for an odd reason, but basically they said that the 1099 form is related to the images sold, not to the payment received. It doesn't make sense to me, I have never received a 1099 on money I haven't receive on the tax year.
Do you experience the same problem? (considering you haven't receive any payment from them in 2011)
Thanks!

Was wondering if you could post a link to where you found that.

Thanks.

@ Ed: I don't have a link. It was a copy/paste of their response.
@ xst: I don't have any choice, they have declared the income to the irs (when you receive a 1099, the irs receives it also). I really prefer to declare money that went to my bank account. It fits them, no me. It's not a lot, but it's a question of principle.

xst - form 1099 is reported to you on a cash basis of accounting (it doesn't matter how you choose to keep books and records at your company).  If you read the instructions to the form, it specifically states that you should report "payments" made to the taxpayer, it does not state that you should report "earnings".

I am a tax accountant.  I have been a tax accountant for 20 years.  About the only thing I agree with you on is that you should hire a tax accountant to assist you in the preparation of your tax returns rather than rely on advice provided in a photography forum.

Greetings, I too have received a 1099-MISC form from Fotolia but have not reached payout level, so Fotolia has not paid me but rather is saying that at the end of 2011 there were x number of dollars or value in my account.

There is a HUGE benefit to Fotolia for using this method of accounting, it allows them to move taxable income OFF their books and ON to your books thus reducing Fotolia's tax burden by several hundred thousand dollars while creating an accounting nightmare for any Fotolia contributors.

The basic concept is that if you work for company "A" in 2011 but are not paid until 2012 you will not report or claim any profits from company "A" on your 2011 taxes.

By using this accounting method company "A" still had the amount owed to you on their books in 2011, and are required to pay taxes on that amount until they 'remove' the amounts owed to you from their books by paying you, which we assume they will do in the tax year 2012.

Now if company "A" moves the amounts it owes you (but has not paid you) from their books in 2011 by issuing you a 1099-MISC as 'earnings' and not 'profit' you can report the 'earnings' to the IRS as 'unrealized profit' or "earnings that haven't been transferred to your books" in the tax year 2011.

This way neither company "A" or you are required to pay taxes on the amount because the amount is off company "A's" books, but not on your books for the tax year 2011.

The problem with this is - You can be sure that if an amount exists the IRS is going to require SOMEONE pay the tax on that amount - and it is much more likely that the IRS will go after the individual tax payer rather than the corporation with the giant accounting firm.

Both the IRS and Fotolia are betting you don't understand the tax code and laws and just pay the tax because it's the easy thing to do rather than explain this whole complicated mess to the IRS auditor.

The thing is, using this accounting method Fotolia has reduced their tax burden by what potentially could amount to hundreds of thousands of dollars and moved the potential tax burden on to the Fotolia contributors.

Sad!

Fotolia's TOS (Terms of Service) state that you must reach $50 before you will be paid via PayPal. So until you reach the $50 payout amount Fotolia still has "your" money and is earning interest for them with "your" money. And Fotolia is reporting to the IRS that you will need to pay the taxes on "your" money even though you don't have "your" money and Fotolia is earning interest on "your" money. How can that be true?

Disclaimer: I am not an accountant or a tax lawyer, however I did stay at a Holiday Inn Express once. Does that count?