A Guide to Self-Employment and Independent Contractor Taxes

If you are using conventional tax software, you’ll be asked to input the information from each 1099-MISC individually. If you work with a tax preparer, the forms are needed to do your taxes. You should always save your 1099-MISC forms for at least seven years after your taxes are filed, in the case that you are audited or need to correct or refile your returns. Technically, a client is required to have a contractor fill out a Form W-9 before they pay them.

It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information in the MBO Blog you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing. Manage your project’s expense, time, invoicing and payments — all in one comprehensive platform.

Form W-9

The Department of the Treasury and the Internal Revenue Service issued final regulations amending the rules for filing returns and other documents electronically (e-file). These regulations affect filers of many types of returns including information returns (for example, Forms 1099) and withholding tax returns (for example, Forms 945 and 1042). Beginning with Tax Year 2020, you must use Form 1099-NEC, Nonemployee Compensation, to report payments of nonemployee compensation (NEC) previously reported in box 7 on Form 1099-MISC. The separate instructions for filers/issuers for Form 1099-NEC are available in the Instructions for Forms 1099-MISC and 1099-NECPDF.

One of the nice things about receiving a 1099-NEC rather than a W-2 is you can claim business deductions on your Schedule C, which you use to calculate your net profits from self-employment. Workest is here to empower small business with news, information, trends, and community. Use this checklist to help you to find the best ways to revamp your company’s employee handbook for the new year. Zenefits offers its clients a template agreement prepared by Orrick.

How do deductions work with Form 1099-NEC?

Through the Taxpayer Portal, you can submit automatic extensions, make corrections and reduce expenses related to paper filing. The Taxpayer Portal allows you to enter data to create Forms 1099 by either keying in the information or uploading a .csv file. For more information see Publication 5717, IRS Portal User GuidePDF. You may continue to use the Filing Information Returns Electronically (FIRE) system to file your information returns.

There are important tax considerations to know about now, so don’t wait until tax time. Gig worker taxes are something you want to wrap your head around well before you file. At its most fundamental, the definition of an independent contractor is anyone who performs services for your company without being bound to the same requirements as your full-time employees. For example, if you run a media outlet and hire a journalist who is not on your full-time staff to write stories for your publication, that journalist would be an independent contractor. If you’ve made the determination that the person you’re paying is an independent contractor, the first step is to have the contractor complete Form W-9, Request for Taxpayer Identification Number and Certification. This form can be used to request the correct name and Taxpayer Identification Number, or TIN, of the payee.

What Are Self-Employed Taxes?

Backup withholding is a tax deduction that occurs when independent contractors provide the wrong TIN or incorrectly report their income on a tax return. In this event, employers may be required to withhold a percentage of any future payments made to the contractor and https://www.bookstime.com/articles/independent-contractor-tax-form deposit it directly with the IRS. If you are paid $600 or more for your work for any individual client, you should receive a 1099-NEC from your customer. If you receive payments through online payment services such as PayPal, you may also receive a form 1099-K.

There is an exception if you spend an extra day or two away to get a cheaper airfare for a Saturday night stay over. If your added cost of meals and lodging for that period don’t exceed what you saved in airfare, those costs (the hotel bill plus 50 percent of meals) can be deducted as business expenses. TurboTax Premium searches 500 tax deductions to get you every dollar you deserve. Each 1099 form must be hand delivered or sent in the mail on or before February 1.

Form W-8BEN is the equivalent of a W-9, but for foreign contractors. Don’t forget – if your foreign contractors operate as a business, they will need Form W-8 BEN-E instead. If your workers are foreign contractors, you don’t need to fill out the 1099-NEC at all. You can simply keep the W8-BEN on record to support why independent contractor taxes were not withheld.

• However, being in charge means paying your own taxes, and you might know a little about many things, but “file taxes as a 1099 independent contractor” isn’t probably on your list.
• Also, refer to Publication 1779, Independent Contractor or EmployeePDF.
• This post is to be used for informational purposes only and does not constitute legal, business, or tax advice.
• Make sure to submit the form either by physical mail or through the IRS’s electronic filing system no later than January 31st.
• This jumps to 16.2% if your gross income is greater than $200,000 in a calendar year.
• If you’re totally new to nonemployee compensation—and given the recent boom in gig workers, there’s a good chance you are—read on.
• If an employer has paid an independent contractor more than $600 in payments related to the business, then the employer will need to fill out an IRS Form 1099-MISC.

This report, which is specific to independent contractors and freelancers, will be necessary for making sure all of the info on your tax return is accurate. Independent business owners file taxes differently than traditional, W-2 employees. If this is your first time managing taxes as an independent contractor, don’t worry. It may feel a bit complicated at first but you’ll get the hang of it soon enough! Below, we answer all your questions about paying taxes as a self-employed professional.

What is Form 1099?

So, let’s get back to your 1099-NEC and outline what it reports and what you do with it. Businesses will use this form for payments for services as part of their trade or business. In addition to individuals, a business may file a 1099-NEC to a partnership, estate or corporation. The IRS planned to implement changes to the 1099-K reporting requirement for the 2022 tax year.

If that’s the case, you could take a crack at filing taxes yourself. Remember, even if the people you work for are sloppy with their paperwork, the IRS makes it your responsibility to report all the income you make during the year. Even if you’re collecting Social Security and Medicare benefits, you still have to pay; this tax applies no matter how old you are.