How to Report and Pay Taxes on 1099 Income

How to Include a 1099-MISC Form on Your Personal Tax Return

1099-misc

 © The Balance 2018

You received a 1099-MISC from someone who paid you for work you did last year. Now what? Two big questions here: 

  1. What do you do with this 1099-MISC form? 
  2. 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-MISC Form?

You probably received a 1099-MISC 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-MISC form showing the total you received during the year.

If you think there is an error on the 1099-MISC form, or if you thought you were working as an employee, contact the payer on the form.

What to Do With the 1099-MISC Form You Received

A 1099-MISC form is used to report amounts paid to non-employees (independent contractors and other businesses to whom payments are made). Non-employees receive a 1099-MISC 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-MISC 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-MISC 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 US 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. 

No Withholding on 1099 Income

You may be wondering why there was no tax withholding on your 1099-MISC form. 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.

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 included on Line 12 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 Schedule C 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. 

Income Tax Withheld From Your 1099-MISC Income

In most cases, no federal income taxes are withheld from non-employees. But there is one circumstance in which the IRS requires backup withholding: If the non-employee has not provided a taxpayer ID number or if the taxpayer ID is missing or invalid, the IRS sends a notice to the payee requiring that backup withholding begin.

If You Have Income But No 1099-Misc 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.

For more information on 1099 income, see this IRS article on Reporting Miscellaneous Income.

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-MISC form.

  • If the income is reported in Box 3, Other Income, include the information on this 1099-MISC on Line 21, Other Income.
  • If your 1099-MISC income has been reported in Box 7, Non-Employee Income, also report this income on Line 21 of your personal tax return.

The IRS says:

If you are not an employee of the payer, and you are not in a self-employed trade or business, you should report the income on line 21 of Form 1040 and any expenses on Schedule A (Form 1040) (PDF), Itemized Deductions.