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How 1099 Forms Impact Freelancers and Contractors

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For freelancers and independent contractors, receiving a 1099 is a clear indicator of taxable income. Here’s how these forms affect self-employed individuals during tax season.

What a 1099 Means for Freelancers

Receiving a 1099-NEC indicates that you earned at least $600 from a single client during the tax year. However, even if you don’t receive a 1099 (e.g., for payments under $600), you’re still required to report all income to the IRS.

Tax Obligations

Unlike employees, freelancers don’t have taxes withheld from their payments. Instead, they must pay:

  • Income Tax: Based on your total earnings.
  • Self-Employment Tax: Covers Social Security and Medicare contributions (15.3%).

How to Prepare for Tax Season

  1. Track All Income: Use tools like QuickBooks or Wave to monitor your earnings throughout the year.
  2. Save for Taxes: Set aside 25-30% of your income for taxes to avoid surprises.
  3. File Quarterly Taxes: Freelancers must make estimated tax payments quarterly to avoid underpayment penalties.

Final Thoughts

Understanding how 1099 forms impact your tax obligations helps freelancers stay compliant and avoid unnecessary penalties.

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