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How to File Freelance Taxes with a 1099

You could get a nasty surprise if you don’t understand how a side hustle can change your tax outlook.

Written by Hilary Collins / August 25, 2022

Quick Bites

  • Gig and freelance work comes with greater independence, but you also have to take on some tax obligations that an employer would usually handle.
  • Keep excellent records to make sure you’re not underpaying or overpaying the IRS.
  • You'll likely have to pay estimated taxes four times a year as a gig or freelance worker, so put those due dates on your calendar and set a portion of your income aside in preparation.
  • Consider talking to a tax expert to make sure you understand the rules, especially if your work blurs the lines between business and personal.

If you’re among the 16% of Americans who have used an online gig platform to earn money, or the 36% who have done freelance work, you already know the differences from a traditional job.[1,2] You get to set your own hours, determine how much money you want to make (at least, in theory) and be your own boss.

But another way side hustles differ from traditional jobs is how they’re taxed. Let’s take a look at how gig and freelance taxes differ from traditional wage taxes and what you should do differently.

Inside this article

  1. How freelance taxes differ
  2. Keep good records
  3. Pay your taxes
  4. Take advantage of tax breaks
  5. Consider talking to a tax pro
  6. Frequently asked questions

What’s so different about gig and freelance work taxes?

The big difference between freelance taxes and taxes at traditional jobs is that you’ll have to track your income and expenses and pay your taxes yourself. At a traditional job, you’ll have your taxes automatically deducted from each paycheck, and you’ll get a W-2 form that spells out exactly how much money you earned, how much in taxes you’ve paid and where that tax money was allocated (such as federal versus state income tax).

At a traditional job, here’s what usually gets taken out of your paycheck:

  • Payroll taxes: This includes Social Security taxes and Medicare taxes. If you see FICA on your paychecks, that’s what that is.

  • Income taxes: This is how much you owe to the federal, state and local government based on how much you’ve earned.[3]

This leaves you with less paperwork and hopefully a minor amount of taxes owed or a small refund coming your way.

If you’re wondering how your employer knows how much to take out of your paycheck, you may remember filling out the W-4 Form from the Internal Revenue Service (IRS) when you started the job.[3] That form helps determine the amount of income tax that should be withheld from your paycheck. The amount is impacted by your marital status, the number of dependents you have and whether you have other income or a working spouse.[4]

Now, with gig and freelance work, you have to do most of the reporting and all of the tax-paying yourself. So rather than getting a W-2 at the end of the tax year, you’re likely to get a 1099, a much simpler form that shows how much you were paid.

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While 1099s can help you with reporting, you’ll need to carefully track both your income and your expenses. After all, with taxes, you don’t want to run the risk of not paying enough—you could be audited and penalized by the IRS.

“For a lot of folks, the opposite actually happens where they overpay because they miss expenses that may have been deductible—that's just as much of an issue,” says Garrett Watson, a senior policy analyst for the Tax Foundation.

Garrett Watson headshot

Meet the Expert

Garrett Watson is a senior policy analyst and modeling manager at the Tax Foundation, a tax policy nonprofit, where he conducts research on federal and state tax policy.

Another difference is that you can’t wait until tax season to pay your taxes. The IRS requires gig and freelance workers who expect to owe at least $1,000 in taxes to pay estimated taxes quarterly.[5] (More on estimating your taxes below.)

Clearly, there are a lot of ways that taxes on income from gig and freelance work are more complicated than the taxes you might be used to with a more traditional job. Here are some of the ways you can make it a little easier on yourself.

Keep good records

If you make $400 or more from self-employment, you will need to file a tax return.[6] If you make $600 or more at a job, that employer should send you a 1099—but that won’t be enough to file your taxes correctly.

Tip

The amount where freelance workers are expected to pay taxes is $400, but employers only have to send you a 1099 for $600 or more. Carefully track your income on your own to make sure you’re not leaving out any income that falls between those two amounts.[7]

“Tracking income and expenses is one of the single biggest differences for these types of workers who are used to a W-2 tax situation,” says Watson. “It’s very different, and doing it as you go is going to be much more accurate and much easier than trying to go back and figure out what's deductible and what's not.”

Using the example of a ride-share gig, you should be tracking not just your income, but your mileage, gas, maintenance costs and other expenses. You can pay a small monthly fee for an app like QuickBooks, or you can use a simple spreadsheet. If you track and document these expenses, you can deduct them from your taxes—or you can use the IRS mileage deduction, which is both easier and often yields a higher dollar amount.[8]

“And of course, it's just easier to understand that and get that set up ahead of time,” says Watson. “It's harder when you’re already a year into it and you have to go back. That’s where it gets stressful trying to catch up.”

So enter the gig or freelance world with a plan for how you will record all of your income and expenses. It will save you a lot of time and anxiety in the long run.

Pay your taxes

The next step is actually paying your taxes. Again, if you’re used to getting a W-2, this can be a bit intimidating. The IRS provides a tax worksheet that will help you calculate the amount you owe.[9]

As a self-employed worker, you will need to pay not only the taxes that would be deducted from your paycheck at a traditional job, but an additional tax as well. This is called the self-employment tax, and it covers the Social Security and Medicare payments employers usually pay. You also need to pay an additional Medicare tax, which isn’t deductible.[7]

Tip

The IRS has a Gig Economy Tax Center with a lot of helpful information to help you navigate taxes on gig work.

Gig and freelance workers have to pay estimated taxes four times a year. Put these dates on your calendar so you don’t miss them[6]:

  • April 15

  • June 15

  • September 15

  • January 15

The IRS offers multiple ways to pay your estimated taxes, including direct pay, check, debit card, credit card and PayPal.[10] It’s highly recommended to set aside 20% or more of their earnings to make sure you have enough on hand to pay your taxes when those dates arrive.[7] You could even squirrel it away in a high-yield online account so you can earn interest in the months before you hand it over to the IRS.

Don’t forget to take advantage of tax breaks

Now for some good news: As a gig or freelance worker, you also get some tax breaks you aren’t eligible for at a traditional job. You may be able to claim the following deductions:

  • The home office deduction allows you to deduct a portion of your real estate taxes, mortgage, rent, insurance and other expenses as long as you have a part of your home dedicated to business.[11]

  • The qualified business income deduction allows you to deduct 20% of your taxable income as long as you meet certain requirements, the most important being not having taxable income of more than $207,500, or $415,500 if filing jointly.[7]

These are valuable tax breaks that can really add up, but again, require excellent record-keeping to calculate them correctly. Do your research to make sure you understand what deductions are available to you and how best to document your income and expenses.

Consider talking to a tax pro

If all of this has your head aching, you should consider talking to an expert. Watson says he recommends talking to a tax professional when your work toes the line between business and personal—like a lot of gig and freelance work does.

“Ride-sharing, for example, is one of the most common [gigs], but the rules and the reporting aren’t really difficult, just tedious and require a lot of attention to detail,” says Watson. “Now, when you get things like room-sharing, where you have a room you rent out in a house that you live in, that can get really complicated because the rules surrounding that are tricky, even for tax wonks and accountants to understand.”

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If your work requires a lot of mixing your business and personal expenses and needs, you should consider talking to an accountant or Certified Public Accountant. And even if your work is clearly delineated from your personal life and expenses, you may want to talk to a professional to confirm your understanding of the rules and get some advice on setting up a system for reporting. After all, getting in trouble with the IRS is no one's idea of fun.

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Research has found that one in three gig workers didn’t know they had to pay estimated taxes quarterly, and oversights like that can bring penalties.[5] Watson warns that the IRS knows that gig workers are a big source of the tax gap.

“When folks are new to the [gig work] space or not familiar with how to approach their taxes when reporting their income, it makes it more important to get it right,” Watson says.

Frequently asked questions

What is a tax deduction?

A tax deduction is an amount you’re allowed to subtract from your taxable income, meaning you pay less taxes overall. Gig and freelance workers might qualify for deductions relating to their home office or business-specific income.

How do I file taxes for gig work?
Article Sources
  1. “The State of Gig Work in 2021,” Pew Research Center, Dec. 8, 2021, https://www.pewresearch.org/internet/2021/12/08/the-state-of-gig-work-in-2021/.
  2. “Freelance Forward Economist Report,” Upwork, August 2021, https://www.upwork.com/research/freelance-forward-2021.
  3. “Understanding Paycheck Deductions,” Consumer Financial Protection Bureau, 2022, https://files.consumerfinance.gov/f/documents/cfpb_building_block_activities_understanding-paycheck-deductions_handout.pdf.
  4. “About Form W-4, Employee’s Withholding Certificate,” IRS, April 21, 2022, https://www.irs.gov/forms-pubs/about-form-w-4.
  5. “Improving the Federal Tax System for Gig Economy Participants,” Tax Foundation, Oct. 18, 2019, https://taxfoundation.org/gig-economy-workers/.
  6. “Manage Taxes for Your Gig Work,” IRS, May 19, 2022, https://www.irs.gov/businesses/small-businesses-self-employed/manage-taxes-for-your-gig-work.
  7. “Financial Planning for Workers in the Gig Economy,” CPA Journal, August 2018, https://www.cpajournal.com/2018/09/05/financial-planning-for-workers-in-the-gig-economy/.
  8. “Tax Tips for Uber Driver-Partners: Understanding Your Taxes,” Intuit TurboTax, July 28, 2022, https://turbotax.intuit.com/tax-tips/self-employment-taxes/tax-tips-for-uber-drivers-understanding-your-taxes-/L7sbLCSc4.
  9. “2022 Estimated Tax Worksheet,” IRS, https://www.irs.gov/pub/irs-pdf/f1040es.pdf.
  10. “Pay Online,” IRS, https://www.irs.gov/payments.
  11. “IRS reminds taxpayers of the home office deduction rules during Small Business Week,” IRS, Sept. 23, 2020, https://www.irs.gov/newsroom/irs-reminds-taxpayers-of-the-home-office-deduction-rules-during-small-business-week.

About the Author

Hilary Collins

Hilary Collins

Hilary is an experienced finance writer with a passion for turning complicated topics into readable stories with real-world takeaways.

Full bio

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