What is 1099 Contractor Form: Detailed Overview
Learn your tax obligations while getting the most out of your returns
5 Min Read
5 Min ReadTax season is upon us, and those working on 1099 forms as independent contractors may have more complicated taxes to file than people working as W-2 employees.
Many 1099 employees are often paid in pre-tax lump sums and need to file their own taxes, and independent contractors are often subject to a large number of write-offs and work-related expense deductions that regular W-2 employees are not.
While in some cases it may be easier to let an accountant put everything together, some independent contractors will prefer to self-file.
This article will overview the different forms and tax documents that a 1099 contractor will need to pull together before filing their taxes and offer some guidance through the process.
What is a Form 1099?
A Form 1099 is one type of tax information return. Taxpayers will receive a Form 1099 via mail if they worked during a given year as a 1099 contractor.
And individuals will need to accurately report all 1099 information on their yearly tax return.
Unlike a standard W-2 form, in which an employer files and withholds the appropriate tax dollars on an employee’s behalf, for all intents and purposes a 1099 contractor is her or his own business.
This means that he or she incurs a unique tax liability, and 1099 contractors generally pay a slightly higher tax rate than their W-2 peers.
Tax brackets and the 1099 contractors
For 2018, there are still seven tax brackets. The referendum for 2018 lowered the rates for a few of the brackets, but the brackets are largely unchanged from 2017.
These are the :
- 10% – $0 to $9,525
- 12% – $9,526 to $38,700
- 22% – $38,701 to $82,500
- 24% – $82,501 to $157,500
- 32% – $157,501 to $200,000
- 35% – $200,001 to $500,000
- 37% – Greater than $500,001
The Standard Deduction was also increased for 2018, rising to $12,000 in 2018 from $6,500 in 2017 for single filers with no dependents.
For 1099 contractors, the standard tax rate is 15.3%.
As it pertains to income tax, a 1099 contractor’s tax bracket will determine her or his tax liability.
As a rough estimate, most single independent contractors should plan on paying income taxes equal to about 30-35% of their total 1099 earnings for a given tax year.
While this figure seems a bit stiff compared to the tax being taken out for W-2 filers, keep in mind that a 1099 contractor can also write-off a good deal of their work-related expenses, including tablets, devices, car mileage, and home-office setups.
Employees vs. independent contractors
People who work primarily as independent contractors will need to know if they are true independent contractors, or if they are considered “employees” for tax purposes.
Some companies use a tax form called a W-9 as a way of enforcing a non-compete clause, offering few of the benefits of being an independent contractor while also offering few of the perks of being an employee, such as guaranteed hours or medical benefits.
This tax situation greatly benefits the employer rather than the employee.
A true independent contractor or 1099 contractor will have complete freedom over their supplies, the specific hours that they work, whom they provide work for, and often work for multiple employers.
Freelance artists, journalists, and photographers would be examples of true independent contractors.
Meanwhile, an employee typically works for only one employer. They complete duties specifically assigned by the employer and do not have a great degree of control over the work assignments. Employers should also provide training in order to have employees file as W-9s.
The W-9 situation is less desirable for employees for a number of reasons. Aside from being given possibly undue responsibilities without the upside, W-9 employees may not be able to claim deductions in the same way as 1099 independent contractors can.
Some of the key differences:
Employee (W-9)
- Has a set of completed duties to maintain employment
- Works for a single employer
- Is provided training
Independent contractor (1099)
- Operates under a business name
- Has multiple clients
- Has a complete schedule and assignment freedom
- Maintains all of her or his own banking and tax records
While the conditions are similar, W-9 employees may or may not receive the same leniency in deductions as 1099 contractors. It’s important for people to know and understand the different prior to preparing all of their tax information.
Tax documents that a 1099 contractor will need
The federal government requires 1099 contractors who make at least $400 in a year to file a full tax return. Individuals making less than this amount in self-employment do not need to file.
When it comes time to put together all of a given year’s tax information, these are the documents that a 1099 contractor will want to have on hand:
Health insurance forms
It’s likely that a 1099 contractor pays for her or his own health insurance. Unless a person has large medical bills, this is typically a bigger credit on most 1099 tax returns.
Receipts
Many 1099 contractors will want to itemize work-expenses, including travel costs, home-office costs, costs related to moving, and any tech that a person needs to do their work. The standard deduction has gone up for 2018. But it’s still wise for someone to know what their exact expenses were for a given year.
They also should take the higher of the two totals.
Student loan information
People who have paid against student loans in a given tax year are eligible to deduct the interest paid. They normally have all of their health insurance information handy.
It’s a good idea for a 1099 contractor to have all student loan information while filling out a return.
The correct 1099 Form
There are over twenty 1099 form types. Independent contractors should do some research to ensure that they’ve obtained the proper form.
All of the information on the various 1099 tax form types is available on the Internal Revenue Service website.
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