How to Use Your 1099 Form to Calculate Self-Employment Taxes

So, you’ve received a 1099 form from a company you have done work for. What does this mean for your taxes? Here’s a rundown of the forms you’ll need to calculate, report, and file your self-employment taxes along with some common questions.

What is a 1099 form?

A 1099 form is a summary of the money you’ve earned working for a company or client.  There are several types, but the most common ones for independent contractors are the 1099-MISC and 1099-K.

Why did you get a 1099 form?

Companies are required to send you a 1099-MISC if you’ve earned more than $600 in wages with them for the year. That’s why Payable requests your tax identification number (typically your social security number) after you’ve been paid more than $600 by an individual company or client.

A 1099-K is generated if you earned over $20,000 and received over $200 payments with a company. This form is increasingly sent to contractors who work for on-demand companies like Lyft and Uber.

When do you get a 1099?

Companies are required to send you a 1099 by January 31st. That form includes all earnings from the previous year. So on January 31, 2016 they will issue you a 1099 for all the money you earned with them in 2015.

What if you didn’t get a 1099 form?

Payable will make sure you receive a form for all the income payments we’ve processed. Even if you don’t receive a form, you’re expected to report that income on your taxes. Please don’t risk an audit by not self-reporting all 1099 income. The IRS could audit you for up to 3 years or even 6 years if you have underreported income by more than 25 percent.

What do you need to do with your 1099(s)?

If you’ve received a 1099 or maybe multiple ones, here’s what you need to know moving forward:

First, the forms you need to use:

• Schedule C -- This is the form you use to calculate your business profit or loss. You’ll take the earnings amount on the 1099 and subtract those earnings from any related business  expenses (like mileage, health insurance premiums or other deductible business expenses).

• Depending on what type of work you do, there’s a chance you may need to fill out multiple Schedule C’s for each business type. Let’s say you are both a graphic designer and a Lyft driver. Those are considered two different work types, or business activity types, by the IRS. You’ll need to fill out a Schedule C for each work type. Don’t worry, you’ll only fill out one Schedule SE!

•  Schedule SE -- On this form you’ll plug in the profit (or loss) you calculated on the Schedule C and use it to measure how much self-employment tax you owe. Self-employment taxes are around 15.4 percent of your income (but with deductions, you can lower it). This tax is what you pay toward Medicare and Social Security.

•  1040 -- This is the same form used to report both W-2 and 1099 income to determine how much in taxes total you’ll cut a check to the IRS for on April 15th. If you’ve been paying  quarterly estimated taxes then you’ll only owe any outstanding amount you haven’t paid in previous quarters. In fact, if you’ve overpaid in prior quarterly tax payments then you’ll even get money back. That’s fun!

Do I need to send the 1099 form to the IRS?

No, the IRS already knows about that income. When you received a 1099, the company also filed your earnings with the IRS. You can keep the 1099 form for your personal tax records.  

Still confused?

We don’t blame you -- taxes are complicated, especially self-employment taxes. It is incredibly worthwhile to speak with a tax professional who specializes in 1099 taxes. They could save you a lot of money in the long-run and give you better understanding of how to lower your tax rate through useful tax deductions.

Disclaimer: all information is meant only as a guide. You’ll need to consult a tax/legal professional for official advice.

Laura is the Director of Marketing at Payable.

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