1099 income technically isn’t considered wages for tax purposes. However, it can still count as income for other reasons.
What’s the difference between 1099 income and wages?
For tax reasons, wages means money paid by an employer to an employee.
1099 income is usually income received by an independent contractor and reported on a Form 1099-NEC or Form 1099-K.
Employers who pay wages have to pay half of an employee’s payroll taxes. 1099 income is subject to self-employment taxes that cover the employer and employee shares of payroll taxes.
If you receive 1099 income, you may be eligible to claim business deductions such as mileage or the Qualified Business Income deduction. Employees generally can’t deduct unreimbursed work expenses.
Is 1099 income earned or unearned income?
Most 1099 income is earned income. This includes income from work you do as an independent contractor.
Remember, earned income means that you had to work to get paid.
In some cases, 1099 income may include passive income from investments or even income that isn’t subject to tax at all. That income is not earned income.
Does 1099 income count as a job?
1099 work counts as a job. Lenders and landlords will usually ask for tax returns to prove your income.
How much does a 1099 get taxed?
Your 1099 income is subject to self-employment taxes and income taxes. Your income tax rate depends on your total income and tax bracket.
While you can’t avoid paying taxes on a 1099 completely, you can reduce your taxes by making sure you claim your business deductions. You may also be able to open a self-employed retirement account like a SEP IRA.
Is it better to be a 1099 contractor or employee?
There is no clear rule for whether it’s better to be a 1099 contractor or employee.
1099 contractors have to pay self-employment taxes, don’t get employer benefits, and aren’t eligible for self-employment. However, many 1099 contractors are able to charge enough to make up for the lost benefits of being an employee.
Some employers try to take advantage of the 1099 rules to cut costs (often illegally). In those cases, it’s usually better to find a job as an employee.