Independent Contractor Tax Form: Everything You Need to Know

Starting with the 2020 tax season, Form 1099 comes in a few different flavors, though each variation serves the same purpose of recording and reporting your income. Most contractors should receive Form 1099-NEC (nonemployee compensation). Whether you started driving for Uber last year or you’ve run a graphic design business out of your basement for a decade, paying the right amount in self-employment taxes is crucial. Fortunately, filing taxes as a self-employed individual isn’t as tricky as it sounds. After that, Bill will move on to the 1040 tax form and begin the process of figuring out the rest of his income taxes. You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done).

Those who relocate to another country as an employee are often considered tax residents of those countries and taxed accordingly. On the other hand, independent contractors who frequently move from place to place, may not stay long enough in a country, or maintain strong enough ties there, to be classified as a tax resident. TaxBandits offers e-filing options for Form 1099-NEC, 1099-MISC, 1099-K, and various other 1099 forms.

Differences Between an Independent Contractor and an Employee

Knowing you have to pay that much on top of your income taxes may be disheartening. The good news is you get to write off half your self-employment taxes as an above-the-line deduction. You’ll need to file a tax return with the IRS if your net earnings from self-employment are $400 or more. Along with your Form 1040, you’ll file a Schedule C to calculate your net income or loss for your business. You can file a Schedule C-EZ form if you have less than $5,000 in business expenses.

You may be a one-person business, but you should never feel alone when filing your business taxes. Get some accounting and tax software to help you organize your independent contract business finances. You might have heard about how the California legislators have impugned the way Uber and Lyft classify their drivers. Check out our guide on independent contractors vs. employees for more on the difference between the two classifications.

Estimating an Independent Contractor’s Federal Tax Liability

If your expenses are less than your income, the difference is net profit and becomes part of your income on page 1 of Form 1040 or 1040-SR. If your expenses are more than your income, the difference is a net loss. You usually can deduct your loss from gross income on page 1 of Form 1040 or 1040-SR. See Publication 334, tax form for private contractor Tax Guide for Small Business (For Individuals Who Use Schedule C) for more information. As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly. Janet Berry-Johnson is a CPA who writes about income taxes, small business accounting, and personal finance.

Taxes can be an incredibly confusing and daunting element of self-employment to understand. Misclassifying employees as independent contractors and noncompliance with the appropriate filing of forms exposes organizations to penalties calculated according to their business size and default duration. There are different https://www.bookstime.com/ methods for paying independent contractors, including payment via direct deposit, payroll, check and cash (not recommended for lack of paper trail). For the past 38 years, businesses filed Form 1099-MISC to report payments to independent contractors. Form 1099-NEC replaces 1099-MISC for this purpose starting in 2020.