What Tax Form Do Subcontractors Fill Out?

An independent contractor, often called a subcontractor, operates as a self-employed individual providing services to clients. Unlike traditional employees, clients do not withhold income tax, Social Security, or Medicare taxes from payments made to subcontractors. This distinction means subcontractors are responsible for managing their own tax obligations and planning throughout the year. Understanding the specific tax forms involved is a fundamental part of fulfilling these responsibilities to the Internal Revenue Service (IRS).

Forms You Provide to Clients

When working with a new client, they will request Form W-9, “Request for Taxpayer Identification Number and Certification.” This form collects your Taxpayer Identification Number (TIN), such as your Social Security Number (SSN) or Employer Identification Number (EIN). You also provide your name, business name (if applicable), address, and tax classification (e.g., individual, sole proprietor, or partnership). A completed Form W-9 helps your client accurately report payments to the IRS using Form 1099-NEC. It also helps you avoid backup withholding, which can occur if they lack your proper TIN.

Forms You Receive from Clients

Clients who pay you $600 or more for services during the year send you Form 1099-NEC, “Nonemployee Compensation,” by January 31 of the following year. This form reports the total nonemployee compensation they paid you. The 1099-NEC displays the payer’s information, your information, and the total amount of nonemployee compensation received in Box 1. It is important to remember that you receive this form; you do not fill it out. This document serves as an official record of income for your annual tax return.

Forms You File with the IRS

Subcontractors file several forms with the IRS to report business income and expenses. Form 1040, U.S. Individual Income Tax Return, is the primary form for individuals to report their income and calculate their tax liability. Self-employment income and deductions are detailed on other schedules attached to Form 1040.

Schedule C (Form 1040), “Profit or Loss from Business (Sole Proprietorship),” is a primary form. It reports business income and expenses, determining your net profit or loss from self-employment. To accurately complete Schedule C, you will need to gather all gross receipts and sales, including amounts reported on Form 1099-NECs and any other income. You also list deductible business expenses like home office deductions, supplies, business vehicle mileage, professional fees, and business insurance premiums.

You also file Schedule SE (Form 1040), “Self-Employment Tax.” It calculates your self-employment tax, covering Social Security and Medicare taxes for self-employed individuals. Self-employment tax is calculated on 92.35% of your net earnings from self-employment, derived from your Schedule C net profit. The total self-employment tax from Schedule SE is reported on Form 1040, and you can deduct half of this amount when calculating your adjusted gross income.

Managing Your Tax Payments

Since clients do not withhold taxes from your payments, you are responsible for paying your income tax and self-employment tax throughout the year. This is done through estimated tax payments. These payments help you avoid potential penalties for underpayment of tax at year-end.

To calculate your estimated taxes, project your expected income, expenses, and any deductions or credits for the year. Form 1040-ES, “Estimated Tax for Individuals,” provides a worksheet to help you determine your required quarterly payments. These payments are due on April 15, June 15, September 15, and January 15 of the following year.