How to Report and Pay Taxes on 1099-NEC Income
How to Include a 1099-NEC Form on Your Personal Tax Return
You received a Form 1099-NEC from someone who paid you for the work you did as an independent contractor. Now what? Two big questions here:
- What do you do with this 1099-NEC form?
- What taxes do you owe on this income?
You must report the income on your personal tax return and you must pay both income tax and self-employment tax (Social Security/Medicare) on this income.
Why Did I Receive a 1099-NEC Form?
You probably received a 1099-NEC form because you worked for someone during the past year but not as an employee. For example, if you got paid as a freelancer or contractor, the person you worked for is required to keep track of these payments and give you a 1099-NEC form showing the total you received during the year.
What to Do With the 1099-NEC Form You Received
A 1099-NEC form is used to report amounts paid to non-employees (independent contractors and other businesses to whom payments are made). Non-employees receive a form each year at the same time as employees receive W-2 forms—that is, at the end of January—so the information can be included in the recipient's income tax return.
Payers are required to give a 1099-NEC form to non-employees only when the total income during the year was $600 or more. If you had income under $600 from that payer, you won't receive a 1099-NEC form, but you still must include the income amount on your tax return.
If you are doing your own tax return using a tax software program, you will be asked if you have any 1099 income. At this point, you can include the information from the form you received.
If you are having a tax preparer do your personal return, give the form to your preparer along with your other documents.
Paying Social Security and Medicare taxes on 1099 Income
Every U.S. taxpayer must pay Social Security and Medicare taxes on his or her income. For self-employed individuals, these taxes are called self-employment taxes. Self-employment taxes are calculated on the individual's federal income tax return based on the net income from the business, including 1099 income.
No Withholding on 1099 Income
You may be wondering why there was no tax withholding on your 1099-NEC form. That's because the payer didn't withhold any taxes from your payments during the year. Employers are not required to withhold federal income taxes from non-employees, except in specific circumstances. Employers also do not withhold Social Security and Medicare taxes from non-employees.
Because no taxes are withheld on 1099 income during the year, you may have to pay quarterly estimated taxes on this income. Failing to pay taxes during the year can result in fines and penalties for underpayment.
Backup Withholding – An Exception
Sometimes the IRS requires withholding from payments to non-employees. This is called backup withholding, and it happens in specific cases, mostly when the payee's tax ID is missing or incorrect. In these cases, the payer receives a notice from the IRS requiring them to begin backup withholding.
Including 1099 Income on Your Tax Return
How you report 1099-MISC income on your income tax return depends on the type of business you own. If you are a sole proprietor or single-member LLC owner, you report 1099 income on Schedule C—Profit or Loss From Business. When you complete Schedule C, you report all business income and expenses. Reporting business expenses—such as fees paid to professionals, purchases of business supplies or equipment, and business office expenses—reduce the net income from your business.
The net income from your Schedule C is reported on Line 3 of Schedule 1 of your personal income tax return along with all other sources of income, including income as an employee and investment income. Your personal income taxes are determined by your total adjusted gross income.
If your business is a partnership, multiple-member LLC, or corporation, your 1099 income is reported as part of your business income tax return.
Entering Multiple 1099 Forms
if you received 1099-MISC forms from several payers, you will need to enter each one separately in your tax software. If you have just one business, all 1099-MISC forms are collected and added to your business tax schedule for that business. If you have several businesses, be sure each 1099 form is connected to the right business.
Self-employment Tax and Employment Taxes
Yes, if you have 1099 income you are considered to be self-employed, and you will need to pay self-employment taxes (Social Security and Medicare taxes) on this income. This is true even if you don't file a Schedule C.
Social Security taxable wages are capped at a maximum each year. First, wages from employment are considered, then self-employment income, until the annual maximum taxable income level is reached. There is no maximum on Medicare taxes, so all employment and self-employment income is subject to Medicare tax.
If You Have Income But No 1099-NEC Form
All income must be reported to the IRS and taxes must be paid on all income. The payee may have forgotten to prepare and submit a 1099-MISC form for the income paid to you. Most likely, the payee may not have paid you $600 or more in a calendar year, in which case, no 1099-MISC must be filed with the IRS and provided to the worker.
If you receive payments from several payees, you may or may not have a 1099-MISC form to match all payments, but you must still report and pay taxes on all 1099 income each year.
If You're Not Self-Employed
If you don't consider yourself self-employed, how you report this income on your personal tax return depends on where it is located on the 1099-NEC form. If the income is reported in Box 3, Other Income, include the information on this 1099-MISC on Line 7a, Other Income.