What Is a 1099?
Form 1099-NEC is the US tax form clients file when paying a freelancer $600 or more in a year; it reports gross payments, from which the freelancer deducts business expenses.
How 1099 works
A client files Form 1099-NEC for every freelancer it pays $600 or more during a calendar year, reporting the gross total in Box 1 and sending copies to both the freelancer and the IRS by January 31. The freelancer reports that gross income on Schedule C, then subtracts deductible business expenses to arrive at net profit, which the IRS taxes. The 1099 reports payments, not profit, so the form never accounts for your software subscriptions, equipment, mileage, or home-office costs. A client issues no 1099 when total annual payments fall below $600, but the freelancer still owes tax on that income. The 1099 also excludes payments routed through PayPal, Stripe, or credit cards, because those processors report on Form 1099-K instead, which means a freelancer can receive multiple forms covering overlapping income and must avoid double-counting. The form drives self-employment tax of 15.3% on net earnings plus ordinary income tax, so a freelancer keeps far less of a $10,000 gross payment than an employee keeps of a $10,000 paycheck. This directly shapes pricing: because no employer withholds taxes or pays half your payroll tax, your rate must build in roughly 25% to 35% for combined federal, self-employment, and state taxes before you reach take-home pay. A freelancer who charges employee-equivalent rates loses money. Track every deductible expense throughout the year, because each dollar of legitimate deduction reduces the taxable amount the 1099 reports and lowers both income and self-employment tax.
Example
A $24,000 contract on a 1099
Maya designs websites and bills a client $24,000 across the year. In January, the client sends her a 1099-NEC showing $24,000 in Box 1. That figure is gross, not profit. Maya deducts $3,000 in business expenses on Schedule C: $1,200 for design software, $900 for a new laptop, and $900 for her home-office portion. Her net profit becomes $21,000. She owes self-employment tax of 15.3% on roughly $19,397 (net profit times 92.35%), which equals about $2,968, plus federal income tax of about $2,300 in the 12% bracket. Her total tax is roughly $5,268, leaving about $18,732 in take-home pay from the $24,000 the 1099 reported. Had Maya not tracked her $3,000 in deductions, she would have paid tax on the full $24,000 and lost roughly $750 more. The lesson: she should have priced the $24,000 project knowing taxes would consume about 22% of it.
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