Freelancer's Guide to 1099 Taxes and Self-Employment

Understanding 1099 Income

If you're a freelancer, independent contractor, or self-employed professional, you'll receive 1099 forms instead of W-2s. The most common is Form 1099-NEC (Non-Employee Compensation), which reports payments of $600 or more from a single client.

Key Differences: 1099 vs W-2

W-2 Employee	1099 Contractor
Employer withholds taxes	You pay your own taxes
Employer pays half of FICA	You pay all FICA (self-employment tax)
May get benefits	No employer benefits
Less control over work	More independence

The Self-Employment Tax

As a 1099 worker, you pay both the employee AND employer portion of Social Security and Medicare taxes:

• Social Security: 12.4% (6.2% × 2)
• Medicare: 2.9% (1.45% × 2)
• Total: 15.3% on net self-employment income

Good news: You can deduct half of self-employment tax when calculating income tax.

Quarterly Estimated Tax Payments

Unlike W-2 employees, freelancers must pay taxes quarterly to avoid penalties:

Quarter	Deadline
Q1 (Jan-Mar)	April 15
Q2 (Apr-May)	June 15
Q3 (Jun-Aug)	September 15
Q4 (Sep-Dec)	January 15

How to Calculate Quarterly Payments

1. Estimate your annual income
2. Subtract business deductions
3. Calculate self-employment tax (15.3% of 92.35% of net earnings)
4. Add federal income tax
5. Divide by 4 for quarterly payment

Common Freelancer Tax Deductions

Reduce your taxable income with legitimate business deductions:

• Home office: Dedicated space used exclusively for business
• Equipment: Computers, software, tools
• Internet and phone: Business percentage
• Professional development: Courses, certifications
• Travel: Business-related travel expenses
• Health insurance: Self-employed can deduct premiums
• Retirement contributions: SEP-IRA, Solo 401(k)
• Professional services: Legal, accounting fees

Record Keeping Best Practices

1. Keep all 1099 forms from clients
2. Track ALL income, even under $600
3. Save receipts for all business expenses
4. Use accounting software to categorize expenses
5. Keep records for at least 3 years (7 for some items)

Avoid These Common Mistakes

• Not saving enough for taxes (aim for 25-30%)
• Missing quarterly payment deadlines
• Forgetting to report all income
• Missing legitimate deductions
• Not tracking mileage for business driving
• Mixing business and personal expenses

Creating 1099 Documentation

If you hire subcontractors or pay other freelancers over $600, you need to issue them 1099-NEC forms. Use our 1099 generator to create accurate, IRS-compliant forms.

When to Consider Incorporating

As your freelance income grows, consider forming an LLC or S-Corp to potentially save on taxes. Consult with a tax professional when your annual income exceeds $40,000.