1099

A tax form reporting income paid to someone outside a traditional employment relationship — most commonly freelancers and independent contractors.

A 1099 is an IRS information return used to report income paid outside of a traditional employer-employee relationship. The most common version for workers is the 1099-NEC (Nonemployee Compensation), which a client or business must send you if they paid you $600 or more in a year for services. Unlike a W-2, a 1099 reports income with no taxes withheld — meaning you're fully responsible for calculating and paying them yourself.

Receiving a 1099 instead of a W-2 has significant tax implications. As a self-employed person, you owe self-employment tax (15.3%) on net earnings — covering both the employee and employer shares of Social Security and Medicare that would otherwise be split with an employer. The IRS expects you to pay estimated taxes quarterly (April, June, September, January) using Form 1040-ES rather than settling up in a lump sum at tax time.

The upside of 1099 income is the ability to deduct legitimate business expenses — home office, equipment, software, professional development, health insurance premiums, and half of the self-employment tax itself. Good record-keeping throughout the year significantly reduces your effective tax rate on contractor income.

Common 1099 Types

  • 1099-NEC: freelance/contractor income of $600+ from a single payer — the most relevant form for independent workers.
  • 1099-MISC: miscellaneous income including rent, prizes, royalties, and attorney fees.
  • 1099-DIV: dividends and distributions from investments.
  • 1099-INT: interest income from bank accounts or bonds.
  • 1099-B: proceeds from broker transactions (stock sales).
  • 1099-G: government payments including unemployment compensation and state tax refunds.

Your Tax Responsibilities as a 1099 Worker

  • Pay quarterly estimated taxes to avoid underpayment penalties — aim to cover at least 90% of this year's liability or 100% of last year's.
  • Track all business expenses year-round — they reduce net self-employment income and your tax bill.
  • File Schedule C (profit or loss from business) and Schedule SE (self-employment tax) with your Form 1040.
  • Consider a SEP-IRA or Solo 401(k) — contractor income allows high retirement contributions that significantly cut taxable income.
  • Keep records for at least 3 years in case of audit (7 years if you underreport income).
  • The $600 threshold is a reporting trigger for payers, not a tax threshold — you owe tax on all income regardless of whether you receive a 1099.

Example

You freelance on the side and earn $12,000 from three clients. Two send 1099-NECs; the third paid you $400 so no 1099 was required. You still owe self-employment tax on all $12,000 — the $600 threshold determines the payer's reporting obligation, not your obligation to pay.