1099 contractor

What It Means

A 1099 contractor is an independent contractor, a self-employed person paid by a business without being on its payroll, named for Form 1099-NEC, the IRS form a business uses to report what it paid them. The business withholds no income tax, Social Security or Medicare from the pay, so the contractor reports the income, pays self-employment taxSelf-employment taxThe Social Security and Medicare tax self-employed people pay on their own profit: 15.3% of 92.35% of net earnings, owed once those reach $400 a year. See more and usually makes estimated payments. Whether someone is truly a contractor depends on how the work is controlled; the IRS and the Department of Labor each have a test, and the form a business sends doesn't settle it.

How People Say It at Work

• "I'm a 1099 contractor, so nothing comes out of my checks."
• "They want to pay me on a 1099 instead of a W-2."
• "Save a chunk of every invoice for taxes."

The Breakdown

Formula for a contractor's self-employment tax, per the IRS

Self-employment tax = (pay minus business costs) × 92.35% × 15.3%, owed once net earningsNet incomeWhat's left after everything is taken out: on a paycheck, pay after taxes and deductions; for a business, profit after all expenses and taxes. See more reach $400. Income tax comes on top.

Worked example. Priya does bookkeeping for one client as a contractor in 2026. The client pays her $30,000 and she spends $4,000 on software and equipment.

Because her client pays her more than $2,000 in 2026, it reports the payments on Form 1099-NEC. She'd owe the tax even with no form, since the IRS says all income goes on the return.

What the result means. About 14% of profit goes to self-employment tax before any income tax, so a contractor rate that looks higher than a matching salary may not be once taxes and costs come out.

Good to Know

For payments made after December 31, 2025, the IRS raised the Form 1099-NEC threshold from $600 to $2,000, and the IRS can adjust it for inflationInflationA general rise in the prices of goods and services over time, so the same amount of money buys less than it did before. See more after 2026. That changes when a client has to send the form, and leaves the tax itself unchanged. On worker status, the IRS looks at behavioral control, financial control and the relationship of the parties, and Form SS-8 asks the IRS to rule on a specific job. The Department of Labor's Fact Sheet 13 says the question under federal wage law is whether you depend on the business economically or run a business of your own, and that getting a 1099 or signing a contractor agreement doesn't make you a contractor. If your situation is unclear, ask a tax professional or an employment lawyer.

Related Terms and Categories

• Freelancing

  Working for yourself, selling your skills to different clients by the project or the hour instead of holding a long-term job with one employer.

• Gig work

  Short-term, on-demand jobs or sales, often found through an app or website, such as rides, deliveries, errands or selling goods; the IRS treats the pay as taxable income.

• Self-employment tax

  The Social Security and Medicare tax self-employed people pay on their own profit: 15.3% of 92.35% of net earnings, owed once those reach $400 a year.

• Quarterly estimated taxes

  Tax paid to the IRS in four installments during the year on income with no withholding, such as self-employment profit; due April, June, September and January.

• Total compensation

  The full value of what an employer pays for your work in a year: base pay plus bonuses and the employer's spending on benefits such as insurance and retirement.

• Benefits package

  Everything an employer offers on top of wages, such as health insurance, paid leave and a retirement plan, which can be worth thousands of dollars a year.

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