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1099 Employees: What it Means and What to Know

Self-employed, contractors, gig workers and more.

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Bethany Hickey

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Holly Jennings

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If you don’t work for someone directly but still bring in income, there’s a good chance you’re considered a 1099 employee. This typically applies to independent contractors, freelancers, gig workers or anyone who falls under the umbrella of self-employed.

Here’s what you need to know about being a 1099 employee, what tax implications can be and what to expect.

Key takeaways

  • A 1099 employee is an independent contractor and receives income reported on IRS Form 1099-NEC or 1099-MISC.
  • 1099 contractors must pay their own taxes, including a 15.3% self-employment tax for Social Security and Medicare.
  • Different 1099 forms report various types of income, such as freelance work, dividends or canceled debts.
  • It’s recommended that 1099 workers budget 25% to 30% of their income for taxes.

What is a 1099 employee?

A 1099 employee is a worker who doesn’t directly work for an employer — sometimes called freelancer, contractor or self-employed.

The digits “1099” refer to 1099 tax forms used to report income and file taxes: 1099-MISC and 1099-NEC. The MISC refers to “miscellaneous,” and NEC refers to “nonemployee compensation.”

In short: If you don’t receive a regular paycheck from an employer that automatically deducts taxes (Forms W-4 and W-2), but you’re still providing services or goods and getting paid, you’ll likely need to complete a 1099 form to report your income or payments and calculate taxes due.

Who is most likely to be researching 1099 employee taxes?

Finder data suggests that women aged 25-34 are most likely to be researching this topic.

Response
Male (%)
Female (%)
65+4.74%3.27%
55-646.45%6.25%
45-549.21%8.68%
35-4411.64%10.98%
25-3411.74%11.78%
18-247.96%7.30%
Source: Finder sample of 7,070 visitors using demographics data from Google Analytics

What type of work is considered 1099?

There’s no set “type” of work that’s considered 1099 work. The information returns 1099-MISC and 1099-NEC are used to report income that didn’t come from an employer.

For example, if you earn at least $600 from a single client, they must send you a 1099-NEC by January 31 of the following year.(1)

1099 workers can include:

  • Delivery services, such as DoorDash
  • Independent contractors
  • Property rentals, such as Airbnb
  • Ridesharing services, such as Uber
  • Sole proprietors

What do 1099 employees do about taxes?

W-2 workers have employers that pull out taxes for them deducted right out of their paycheck. If you’re self-employed, you don’t have an employer deducting taxes from your paycheck for you — which means you’ll have to figure some of it out on your own.

  • Self-employment tax. 15.3% tax rate, 12.4% for Social Security and 2.9% for Medicare.
  • Federal income tax. Based on total taxable income for the year.
  • State income tax. If applicable in your state (all but nine have state income tax).(2)
  • Quarterly estimated taxes. You’re required to pay taxes quarterly if you expect to owe at least $1,000 in taxes for the year.

There are forms that can help you estimate your owed amounts as a self-employed person. For example, you could use Form 1040-ES to figure out how much you owe in taxes for the year to see if you’ll be required to pay taxes quarterly. There’s also Schedule SE (attached to Form 1040) to figure the tax due on net earnings from your self-employment. (3)

If this is all new to you, we heavily recommend contacting a tax professional for guidance.

How much should I set aside for taxes?

As a general rule, it is recommended to set aside 25% to 30% of your income for taxes. You could also subtract expected tax credits or deductions if you want to pay exactly what you owe. Just remember that if you overpay on taxes, you could receive a refund after filing your taxes for excess payments. But if you underpay on taxes, you’ll likely owe taxes after you file.

Compare tax software

Narrow down top tax software by federal and state pricing, guarantees and other features. For a closer comparison, tick the Compare box on multiple options to see benefits side by side.

1 - 8 of 8
Updated regularly
Product USFSA-TAX Federal starting price State returns starting price Maximum return guaranteed? Free options available? Photo import of W2? Live chat?
TaxSlayer
TaxSlayer logo
$22.95
$39.95
Yes
No
Yes
Yes
Go to site
Cash App Tax
Cash App logo
$0
$0
Yes
Yes
Yes
No
Go to siteMore Info
FreeTaxUSA
FreeTaxUSA logo
$0
$14.99
Yes
Yes
Yes
Yes
Go to siteMore Info
Chime Tax filing
Chime logo
$0
$0
Yes
Yes
No
No
Go to siteMore Info
Intuit TurboTax
Intuit TurboTax Tax Preparation Software logo
$89
$39
Yes
Yes
Yes
No
Go to siteMore Info
H&R Block
H&R Block logo
$35
$37
Yes
Yes
Yes
Yes
Go to siteMore Info
Keeper
Keeper logo
$99
Included
Yes
No
No
Yes
Go to siteMore Info
Liberty Tax
Liberty Tax logo
$45.95
$36.95
Yes
No
Yes
Yes
Go to site
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Bottom line

Being a 1099 contractor means more freedom and flexibility, but it can also mean a more hands-on approach to handling taxes. Since taxes aren’t withheld for you, it’s crucial to set aside money and make quarterly tax payments if required. Understanding the key differences between 1099 and W-2 employment can help you decide if independent work is right for you.

Go to the IRS’s Self-Employed Tax Center to learn more about being a 1099 employee. If you’re unsure how to handle your taxes, consider working with a tax professional to avoid surprises at tax time.

Frequently asked questions

Do 1099 employees get benefits?

No, independent contractors don’t usually receive employer-sponsored benefits like health insurance, paid time off or retirement perks. However, they can set up their own benefits, such as an individual retirement account (IRA) or self-employed health insurance.

Can I write off expenses as a 1099 worker?

Yes, 1099 contractors may be able to deduct business expenses like home office costs such as internet, phones and equipment. Just be sure to keep your receipts!

What happens if I don’t pay quarterly taxes?

If you don’t make quarterly estimated tax payments, you may owe penalties when you file your return. The IRS expects self-employed individuals to pay throughout the year if they expect to owe at least $1,000 in taxes for that year.

Can I be both a W-2 and a 1099 worker?

Yes, some people have both types of income. If you’re employed and also freelance on the side, you’ll receive a W-2 from your employer and a 1099-NEC from freelance clients.

Holly Jennings's headshot
To make sure you get accurate and helpful information, this guide has been edited by Holly Jennings as part of our fact-checking process.
Bethany Hickey's headshot
Written by

Editor, Banking

Bethany Hickey is the banking editor and personal finance expert at Finder, specializing in banking, lending, insurance, and crypto. Bethany’s expertise in personal finance has garnered recognition from esteemed media outlets, such as Nasdaq, MSN, Yahoo Finance, GOBankingRates, SuperMoney, AOL and Newsweek. Her articles offer practical financial strategies to Americans, empowering them to make decisions that meet their financial goals. Her past work includes articles on generational spending and saving habits, lending, budgeting and managing debt. Before joining Finder, she was a content manager where she wrote hundreds of articles and news pieces on auto financing and credit repair for CarsDirect, Auto Credit Express and The Car Connection, among others. Bethany holds a BA in English from the University of Michigan-Flint, and was poetry editor for the university’s Qua Literary and Fine Arts Magazine. See full bio

Bethany's expertise
Bethany has written 427 Finder guides across topics including:
  • Personal finance
  • Banking
  • Auto loans
  • Insurance
  • Cryptocurrency and NFTs
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4 Responses

    Default Gravatar
    johnApril 19, 2019

    My wife got hired at a hair salon as a 1099 employee. Her boss sets her schedule and pays her weekly not invoiced. My question is it legal to do this for an indefinite period of time, seems to me lime she is doing this to avoid unemployment tax and workers comp

      Default Gravatar
      nikkiangcoApril 20, 2019

      Hi John,

      Thanks for getting in touch! As it says on the information above, when you work as a 1099 employee, you’re not an employee. Instead, you’re considered an independent contractor. As an independent 1099 worker, you can enjoy the advantages of setting your own price, working around your own schedule and controlling how you meet your obligations to your clients. But you’ll typically lose out on employee benefits like compensated time off, overtime and unemployment benefits, not to mention the responsibility of filing your own taxes throughout or at the end of the year.

      Hope this helps!

      Best,
      Nikki

    Default Gravatar
    JimmerApril 10, 2019

    I make @$500/month as a 1099 employee. Must I file quarterly estimates and who pays the social security on theses wages?

      Default Gravatar
      nikkiangcoApril 10, 2019

      Hi Jimmer,

      Thanks for getting in touch with Finder! As it says on the page – Yes, you are responsible for paying your own taxes. Your client will not withhold federal or state taxes, like they will for W-2 employees. Outside of the 1099-MISC, you may need to file your estimated taxes quarterly if you will pay more than $1,000 in taxes for the fiscal year. Also, as a self-employed individual, you must pay Social Security and Medicare taxes.

      Hope this helps!

      Best,
      Nikki

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