How 1099s work — and what to do when one shows up.

What a 1099 is

A 1099 is an “information return” — a form sent both to you and to the IRS reporting that someone paid you something during the year. Think of it as the non-employment cousin of the W-2. The key differences:

• No tax is withheld. Unlike a W-2, a 1099 reports gross income. You’re responsible for paying any tax owed on it.
• The threshold to issue one is low. A payer must send a 1099-NEC for $600 or more in contract work. Lower thresholds apply for some other types.
• You owe tax even if the form never arrives. The IRS treats unreported income as taxable regardless of paperwork.

The common types

There are roughly twenty 1099 variants. The eight that cover almost every situation:

If you’re a contractor: the math

This is where 1099 income gets meaningfully more expensive than W-2 income, and where most people underestimate their tax bill.

When you’re a W-2 employee, your employer pays half of your Social Security and Medicare tax (7.65%) and you pay the other half — both halves come out of your paycheck and you don’t think about it. When you’re self-employed, you pay both halves — 15.3% — on top of federal and state income tax. This combined Social-Security-plus-Medicare-on-yourself tax is called self-employment tax.

A rough decomposition for a freelancer in the 22% federal bracket, in a state with 5% income tax:

Total: about $423 of every $1,000 goes to taxes. That’s before any business deductions (see Schedule C below). Most freelancers should set aside 25–35% of every payment received for taxes. Some keep a separate savings account that money goes straight into when an invoice clears.

Quarterly estimated payments. If you expect to owe more than $1,000 in tax for the year (most freelancers do), the IRS expects you to pay it in four installments throughout the year — April, June, September, and the following January. Form 1040-ES has the worksheet; most tax software generates the vouchers automatically once you tell it you’re self-employed. Missing quarterly payments doesn’t mean you can’t pay later — it just means you’ll owe a small underpayment penalty when you file.

Schedule C. This is the form where business income and business expenses are netted against each other. Anything that’s “ordinary and necessary” for the work — software subscriptions, a portion of internet/phone if you work from home, mileage to client meetings, a home office (under specific rules) — is deductible. Schedule C lowers the income that the 22% federal, 5% state, and 15.3% SE tax all apply to, so a $1,000 deduction is roughly worth $423 in real tax savings to a 22%-bracket freelancer.

If it’s an investment 1099

1099-INT, 1099-DIV, and 1099-B are usually the easy ones. Your brokerage or bank will issue them in late January or February (sometimes consolidated into one large statement). Most tax software imports them directly via the brokerage’s download tool — you typically don’t need to type a number yourself.

Two things to know:

• 1099-INT/DIV income is taxed as ordinary income in most cases (qualified dividends get preferential capital-gains rates). It adds to your AGI.
• 1099-B reports sales — and the brokerage usually also reports the cost basis. Your tax software computes capital gain or loss automatically. If basis is missing or wrong (common with older holdings), you may need to look it up manually.

If you don’t receive one

You still owe tax on the income. The 1099 is a report — not a permission slip. If you know you were paid and the form never arrives, file using your own records (bank statements, invoices, emails). The IRS receives its copy directly from the payer and will compare against your return either way. Filing the income honestly without a form is far less risky than omitting it because the form never showed up.

For the broader picture of how all your income — W-2, 1099, everything — combines into a single tax bill, our explainer on how taxes actually work walks through the math.