1099 Job | What is Contract Work?
1099 Job: What is freelancing and what are the benefits of 1099 work?
You may have heard of a 1099 and wonder what it is and if it applies to you. Put simply, a 1099 is a form that captures payments made to independent contractors (NEC, or non-employees) throughout the year. A 1099 job typically describes any given project or agreed upon work that a contractor, or freelancer, is obligated to complete/provide. It’s also important to note that since 2020, the 1099-NEC is the primary form used for contractor work, whereas in the past, the 1099-MISC has been used.
| Type | 1099 Job | Regular Job |
|---|---|---|
| What: | Jobs that are performed on a contract basis. | Jobs with a regular paycheck and well-defined hours and salary |
| Implications: | Receive periodic payments and 1099 forms at EOY No defined benefits like health insurance/retirement More flexibility in what, when and how work is conducted Need to acquire and manage clients and sell your skills |
Receive regular paychecks and W2 forms at EOY Generally comes with health insurance and retirement benefits More hierarchy and less control over what you work on and how Work is generally given or assigned, no need to acquire your own clients/work |
| Pros/Cons: | Pros: More freedom, no defined hours or work Can have more pay, depending on your practice/ability to sell More variety in work/clients Cons: Can be stressful if not getting new work/clients No subsidized benefits like health insurance/retirement Can be lonely/hard to find people to rely on but yourself |
Pros: Very structured, know when/what to expect for pay Usually comes with benefits like health insurance/retirement plans Do not have to acquire your own clients/work Can have a strong network of peers at work Cons: Less freedom, defined hours and work Pay may not always follow with performance Can be bureaucratic Stagnant growth, limited ability to choose your work |
How is a 1099 Worker defined exactly?
With that said, when people talk about 1099 forms or jobs, typically they are talking about the freelancing economy, gig workers, or independent contractors. In fact, even LLCs receive 1099s. Often, many business owners are also a part of this conversation as they are also often recipients of 1099s, or are self-employed and many of the topics apply similarly.
What is a 1099 Job?
A 1099 job is a defined project, or contract, that a freelancer has agreed upon with their client. It can vary between clear deliverables like edited photos, videos, etc. or services like 10 hours of modeling.
How taxes work for 1099 workers
Taxes for 1099 workers are a little bit different. Unlike employees, 1099 workers typically do not receive a regular paycheck. Instead, they receive a 1099 at the end of year that summarizes payments from that particular client. In fact, most established freelancers will receive multiple 1099s, one from each client and 1099 workers are generally considered self-employed.
When it comes time to file taxes, 1099 workers have to sum up the amounts from each 1099 to report total income. Generally, the 1099 amounts will be summed up and recorded on Schedule C of your 1040. Then, if you have any eligible expenses as a freelancer, you can deduct those expenses from your income to lower your tax liability: one of many great advantages of being a freelancer or 1099 worker!
Tax Write-offs
Tax write-offs are often synonymous with:
Expenses
Deductions
Tax deductions
Tax reductions
Generally, people mean the same thing when they talk about it in the tax context. Basically, independent contractors, or freelancers, are able to deduct (or reduce) their income by the amount of eligible expenses they have incurred. What does this mean? Here are some examples:
If you’re an Uber driver and you rack up miles on the car you use to drive clients, you can take a standard mileage deduction ($0.585 per mile) against your income. For example, if you drove 100 miles for Uber and made $1,000, you can deduct $58.5 from your income, meaning only $941.50 is taxable, instead of the full $1,000.
If you’re a freelance graphic designer and you pay $50 a month for Adobe Creative Cloud, you can deduct the $50 each time since it is a tool you use to conduct business.
You start a house-painting business and pay for $1,000 for advertising to get the word out, you are able to deduct $1,000 from any money you made.
FAQs:
What does a 1099 job mean?
A 1099 job just means that an individual is working on a job on a contract basis. This simply means that they are typically not on a regular payroll and not considered an employee, and therefore are not entitled to extra benefits or regulations enforced by the government.
Is a 1099 job worth it?
Whether a 1099 job is worth it can be subjective. Usually, a 1099 job comes with more freedom around the type of work you do, when you work on it, and even how much you work, but this is all with the caveat that you have to find your own clients and have desirable skills. For some, that means better control over your work-balance and could even mean higher pay, since you can dictate your pay rate.
However, others may prefer a more structured arrangement with regular paychecks and benefits like health insurance/retirement plans as an employee.
Is working on a 1099 illegal?
No–working as a 1099 worker is not illegal. It simply means you are working on a contract basis and are not considered an employee.
