How Does Form 1099 Work for Filing Taxes?
Understand how Form 1099 income impacts your tax return. Our guide explains the process for reporting payments and managing your self-employment tax obligations.
Form 1099 is a series of documents the Internal Revenue Service (IRS) calls “information returns.” Unlike a W-2 that reports wages, a 1099 form reports other types of income paid by a business to a non-employee. The form’s function is to create a paper trail for the recipient and the IRS. The payer sends a copy to both parties, allowing the IRS to verify that individuals are reporting all their taxable income.
Who Issues and Receives a Form 1099
The payer, which is a business, government entity, or other organization, is responsible for issuing a Form 1099. The form is issued when the payer makes certain reportable payments in the course of its trade or business. This requirement is triggered when a business pays an individual, partnership, or estate $600 or more for services during the year.
The recipient is the individual or entity that performs the service and receives payment, such as an independent contractor or freelancer. Receiving a Form 1099 signifies that a payer has reported the income to the IRS. The recipient must account for this income on their tax return, as the form serves as an official record of earnings from that payer.
Common Types of Form 1099
The most prevalent type for freelancers and independent contractors is Form 1099-NEC, Nonemployee Compensation. This form is used to report payments of $600 or more for services performed by a nonemployee. It covers payments for fees, commissions, or any other form of compensation for contract work.
Form 1099-MISC, Miscellaneous Information, is now used for other specific payments. These include $600 or more in rent or royalties, as well as prizes, awards, or payments made to an attorney. This form separates payments for services from other types of miscellaneous income.
Form 1099-K, Payment Card and Third Party Network Transactions, reports payments from payment apps, online marketplaces, and credit or debit card transactions. For the 2024 tax year, the reporting threshold for third-party settlement organizations like payment apps is $5,000 as part of a phased implementation of new rules. This minimum does not apply to payment card transactions, which have no minimum reporting amount.
Other common forms include the 1099-INT for interest income and the 1099-DIV for stock dividends, which report investment-related earnings.
Reporting 1099 Income on Your Tax Return
Income from a Form 1099-NEC is self-employment income and must be reported on Schedule C (Form 1040), Profit or Loss from Business. On this form, you report the gross income from your 1099s and any other business income you received. For tax purposes, you are treated as operating your own business.
When completing Schedule C, you can deduct ordinary and necessary business expenses to lower your taxable income. Common deductions include:
- Supplies
- Home office expenses
- Vehicle mileage
- Software subscriptions
Subtracting these costs from your gross income determines your net profit, which is the amount subject to tax.
Your net profit from Schedule C is used to calculate self-employment tax on Schedule SE (Form 1040). This tax covers Social Security and Medicare contributions. For tax year 2025, the rate is 15.3%, which consists of 12.4% for Social Security on earnings up to $176,100 and 2.9% for Medicare with no income limit. This tax is then added to your income tax liability on your Form 1040.
Since taxes are not withheld from 1099 payments, you may need to pay estimated taxes. If you expect to owe at least $1,000 in tax for the year, you must make quarterly payments using Form 1040-ES. These payments are due in April, June, September, and January and cover both income and self-employment taxes to avoid an underpayment penalty.
Handling Discrepancies and Missing Forms
If you receive a Form 1099 with incorrect information, contact the payer listed on the form. Request a corrected Form 1099, which has a box checked to indicate it is a correction. Keep a record of your communications with the payer about the error.
If the payer does not issue a corrected form, report your actual income. You can attach a statement to your tax return explaining the discrepancy between your reported income and the amount on the incorrect 1099. This explanation can help prevent an IRS notice for underreported income.
You may not receive a Form 1099 from a client, even if you earned over $600. You are still legally obligated to report all income, regardless of whether you receive a form. Use your own records, like invoices and bank deposits, to report the correct amount. If you do not receive an expected form by mid-February, contact the payer, but do not delay filing your taxes if you have accurate records.