I work from home as a self-employed individual in state of MI. Most of my income is from a local building contractor, who sends me a 1099-misc (line 7 non-employee, Cash Basis). This 1099-misc includes labor payments, mileage reimbursement, and the amount of money they deduct (0.85% of labor payments) because I do not carry construction liability insurance.

In 2009, ~$260 was deducted because I do not have this liability insurance, but it would have cost me at least $500 to obtain the insurance myself. There is no record on my payments that the 0.85% of labor pay is being deducted - it just shows up as additional income on my 1099-misc. It seems to me that their deduction should not have been included on my 1099-misc form as additional income. Am I correct? How should I handle this?

Also, I track and file my taxes using Accrual Basis and the building contractor prepares my 1099-misc using Cash Basis. Can I require them to prepare my 1099-misc using the Accrual Basis? If not, how can I handle the discrepancy between the Cash Basis & Accrual Basis methods. I want to continue using the Accrual method for my income taxes. I make quarterly estimated tax payments for both, and I use TurboTax to file my Federal & State Income taxes.