If you do any freelance or independent contractor work, figuring out how to do everything required of you can be quite difficult at first. You are probably used to your employer taking care of things like withholding appropriate taxes each pay period. However, as an independent contractor, you will need to learn how to take care of things like this for yourself.
It is especially important to learn how to do this correctly as there are some very common and potentially costly misconceptions out there about paying taxes as a 1099 worker. We are going to clear up one of those misconceptions for you here.
How Much 1099 Income Can a Worker Make Before Claiming it on Yearly Taxes?
There is a common belief that there is a minimum amount earned in order for self-employed income to be claimed on annual taxes. However, this is not the case. This common confusion generally comes from the fact that employers are not required to provide a Form 1099 to independent contractors unless they pay them at least $600.
Even if the amount earned is less than $600 and you do not receive a 1099 from the employer, you are still required to claim this income on your yearly taxes. According to the IRS:
“It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income.
All income earned through the taxpayer’s business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040.”
There is a difference in how you report self-employed or independent contractor income based on the amount received within a year, however. If you’re self-employed net profit is more than $400 in a given year, then you must also file a Form 1040 Schedule SE. If this did not exceed $400, then it is filed on Line 21 of your regular Form 1040 as “Other Income.”