If you drive for Uber, deliver for DoorDash, or freelance on Upwork, you've received a 1099. Here's what it actually means.
A W-2 means your employer withholds taxes from every paycheck and sends them to the IRS on your behalf. You're an employee.
A 1099 means you're an independent contractor. The company pays you in full and you're responsible for sending money to the IRS yourself. There is no withholding.
1099-NEC (Nonemployee Compensation): For freelancers, contractors, gig workers. Used when you earned $600+ from a single client/platform.
1099-MISC (Miscellaneous Income): For other types of income like rent, royalties, prizes. Less common for gig workers.
1099-K (Payment Card/Third Party): Shows when payment processors (Stripe, PayPal, etc.) processed transactions for you. Threshold: $20,000 AND 200 transactions. Some platforms also issue this regardless of threshold.
As a 1099 worker, you owe:
• Federal income tax — your marginal rate (10-37% depending on income)
• Self-employment tax — 15.3% on net profit (Social Security + Medicare)
• State income tax — varies by state (0-13% of net income)
The legal way to reduce 1099 taxes: maximize deductions. Every legitimate business expense reduces your taxable profit. Track everything. Use QuickBooks or FreshBooks from day one.