Interest/Dividends/Other Types of Income > 1099-MISC, Independent Contractors, and Self-employed

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Frequently Asked Tax Questions

Interest/Dividends/Other Types of Income - 1099-MISC, Independent Contractors, and Self-employed

Rev. date: 1/2009

I am self-employed. How do I report my income and how do I pay Medicare and Social Security taxes?

Estimated Tax for Individuals
Federal Income, Social Security, and Medicare Taxes
Medicare
Reporting and Paying Social Security, Medicare, and Withheld Federal Income Taxes
Self-Employment
Social Security and Medicare Tax Rates
Social Security and Medicare Taxes
Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)
Tax Withholding and Estimated Tax

You are a sole proprietor if you are the sole owner of a business that is not a corporation:

Report your income and expenses from your sole proprietorship on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship) or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.
If the total of your net earnings from self-employment from all businesses is $400 or more, you must pay into the Social Security and Medicare systems by filing Form 1040, Schedule SE (PDF), Self-Employment Tax.
Self-Employment tax consists of the Old-Age, Survivors, and Disability Insurance (social security) and the Hospital Insurance (Medicare) taxes.

Note: The Federal tax system is based on a pay-as-you-go plan. Tax is generally withheld from employees' wages or salary before they get it. However, tax is generally not withheld from self-employment income. Thus, you may be required to make estimated tax payments. Publication 505, Tax Withholding and Estimated Tax, provides information on making estimated tax payments.

Rev. date: 1/2009

What, if any, quarterly forms must I file to report income as an independent contractor?

Employee - Independent Contractor
Estimated Tax
Estimated Tax for Individuals
Miscellaneous Income (Info Copy Only)
Nonemployee Compensation
Self-Employment
Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)
Tax Withholding and Estimated Tax

Because you generally will have no taxes withheld from your income, you may need to make quarterly estimated tax payments:

For information on how to make estimated tax payments refer to Form 1040-ES (PDF), Estimated Tax for Individuals.

You need to be aware that there may be state and local requirements for estimated tax payments:

You can start looking for information at How to Contact Us. You may want to go to your state's individual Web site for additional information.
To access the state you need go to our Alphabetical State Index.

Rev. date: 1/2009

I received a Form 1099-MISC instead of a Form W-2. I'm not self-employed, I do not have a business. How do I report this income?

Employee - Independent Contractor
Form 1099-MISC.
Form W-2.
Miscellaneous Income (Info Copy Only)
Nonemployee Compensation
Self-Employment

If payment for services you provided is listed in box 7 of Form 1099-MISC (PDF), you are being treated as a self-employed worker, also referred to as an independent contractor:

You do not necessarily have to "have a business," but simply perform services as a non-employee to have your compensation treated this way.
The payer has determined that an employer-employee relationship does not exist in your case.
That determination is complex, but is essentially made by examining the right to control how, when, and where you perform those services.
It is not based on how you are paid, how often you are paid, nor whether you work part-time or full-time.

There are three basic areas that are relevant to determine employment status:

Behavioral control,
Financial control, and
Relationship of the parties

For more information on employer-employee relationships, refer to Chapter 2 of Publication 15, Circular E, Employer's Tax Guide and Chapter 2 of Publication 15-A (PDF), Employer's Supplemental Tax Guide.

If you think that you were, or are, an employee and you would like the IRS to issue a determination, you may submit Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Unless you think you were an employee, you report your non-employee compensation on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit from Business:

You also need to complete Form 1040, Schedule SE (PDF), Self-Employment Tax, and pay self-employment tax on your net earnings from self-employment, if you had net earnings from self-employment of $400 or more.
This is the manner by which self-employed persons pay into the Social Security and Medicare trust funds. Employees pay into the Social Security and Medicare trust funds, as well as income tax withholding, through deductions from their paychecks.
Generally, there is no tax withholding on self-employment income.
You may be subject to the requirement to make quarterly estimated tax payments.
If you did not make estimated tax payments, you may be charged a penalty for underpayment of estimated tax penalty.

Rev. date: 1/2009

I received a Form 1099-MISC with an amount in box 7, (nonemployee compensation). What forms and schedules should be used to report income earned as an independent contractor?

Employee - Independent Contractor
Form 1099-MISC.
Miscellaneous Income (Info Copy Only)
Nonemployee Compensation
Self-Employment
Social Security and Medicare Taxes
Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)
Withholding Tax

Independent contractors report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business (Sole Proprietorship):

You should also be aware of Form 1040, Schedule SE (PDF), Self-Employment Tax, which must be filed if net earnings from self-employment are $400 or more. This form is used to figure your social security and Medicare tax which is based on your net self-employment income.
You may need to make estimated tax payments. If not timely paid, you may also need to file Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates & Trusts.

Rev. date: 1/2009

My son is a newspaper carrier. I would like to know if this income is subject to Social Security and Medicare tax and if I must file a Schedule C for him?

Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits
Employee - Independent Contractor
Exemption From Social Security and Medicare Taxes
Federal Income, Social Security, and Medicare Taxes
Miscellaneous Income (Info Copy Only)
Net Profit from Business (Sole Proprietorship)
Reporting and Paying Social Security, Medicare, and Withheld Federal Income Taxes
Schedule C or C-EZ
Schedules (Form 1040) C
Self-Employment
Social Security and Medicare Tax On Unreported Tip Income
Social Security and Medicare Tax Rates
Social Security and Medicare Taxes
Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)

Your son may be liable to pay into the Social Security and Medicare system by paying self-employment tax:

Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery or distribution) are considered by statute as nonemployees and are treated as self-employed for all Federal tax purposes, including income and employment taxes.
His employer should complete the other income box on Form 1099-MISC (PDF), Miscellaneous Income.
Self-employed persons report their income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business.
See Form 1040, Schedule SE (PDF), Self-Employment Tax, which must be filed if net earnings from self-employment are $400 or more.


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