Is Income From Clinical Trials Taxable?

Compensation received for participating in a clinical trial is considered taxable income by the Internal Revenue Service (IRS). The government’s definition of gross income is broad and includes payments made to clinical trial subjects. How this income is taxed depends on your relationship with the research organization and whether payments are compensation for your time or reimbursement for expenses.

Classifying Clinical Trial Payments

The primary factor for your tax situation is whether you are an independent contractor or an employee. Most participants are independent contractors, meaning you are providing a service to the research organization. This classification applies because the organization does not control how you perform the service, only the outcome. As a contractor, you are not on their payroll, and they do not withhold taxes from your payments.

In the rare case you are an employee, the institution would control your activities like a traditional job, providing training and directing your work in detail. As an employee, the institution withholds income, Social Security, and Medicare taxes from your paychecks and provides you with a Form W-2.

Payments for your time, effort, and the inconvenience of participation are taxable compensation. Conversely, payments that are direct reimbursements for specific, documented out-of-pocket costs are not taxable. These can include funds for transportation, lodging, or meals required for your participation in the trial.

Required Tax Forms and Documentation

If you were paid $600 or more during the calendar year, the research organization is required to send you a tax form detailing your compensation. For independent contractors, the IRS requires payers to use Form 1099-NEC, Nonemployee Compensation. Some organizations may incorrectly issue an older Form 1099-MISC, but you must still report the income based on your role.

You are legally required to report all income, even if you do not receive a 1099 form because your earnings were below the $600 threshold. If you earned $600 or more and do not receive a 1099 by early February, contact the paying organization to request a copy. If that fails, you still have an obligation to report the income documented through your own records, such as bank statements or payment receipts.

Reporting Income on Your Tax Return

The way you report clinical trial income depends on whether your participation is considered a trade or business. If you participate in clinical trials regularly with the intent to make a profit, the IRS considers it a business. In this case, you would report the income on Schedule C (Form 1040), Profit or Loss from Business.

Reporting income on Schedule C means your net earnings are subject to self-employment tax. This tax, calculated on Schedule SE (Form 1040), covers your Social Security and Medicare tax contributions. The self-employment tax rate is 15.3%, consisting of 12.4% for Social Security up to an annual limit ($176,100 for 2025) and 2.9% for Medicare with no limit.

If your participation was infrequent and not part of a regular trade or business, the income is not subject to self-employment tax. In this situation, you would report the payment as “Other Income” on Schedule 1 (Form 1040), Additional Income and Adjustments to Income.

Allowable Deductions and Estimated Taxes

When you file as an independent contractor using Schedule C, you can deduct ordinary and necessary expenses you incurred to participate in the trial. You must have clear records, such as receipts and mileage logs, to substantiate these deductions. Common deductions include:

• Mileage for driving to and from the research facility
• Tolls and parking fees
• Unreimbursed costs for lodging required for the study
• Unreimbursed meals required for the study

These deductions reduce your gross receipts, lowering the net profit on which you owe both income and self-employment tax. For example, if you use your personal vehicle, you can deduct the actual costs of using your car or take the standard mileage rate, which for 2025 is 70 cents per mile. Meal expenses are 50% deductible.

If you report the income on Schedule 1, you cannot deduct related expenses. If you anticipate owing at least $1,000 in tax from your clinical trial income, you may be required to pay estimated taxes. Since taxes are not withheld from contractor payments, you pay them in quarterly installments using Form 1040-ES to avoid an underpayment penalty.