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A Guide to

Understanding 1099 Jobs

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The ins and outs of working for yourself

1099 job is a word thrown around a lot in the freelancer, self-employed and individual contractor space. In essence, 1099 jobs can be explained as freelance contracts with self-employed professionals that could be short-term or long-term, based on the nature of the contract. The term 1099 originates from the IRS Form 1099, an information-sharing form sent to the IRS by a contracting party. For example, you work as a freelancer or self-employed individual with a company and get a payment for your services or products; This company is obliged to send a 1099 form to the IRS reporting all the payments sent to you for your work. Similarly, this company also sends a copy to you as a self-employed individual.

Image of text explaining the origin of the term "1099 job" and its relation to IRS Form 1099 and taxes. Relevant for self-employed and freelancers.

Table of contents

Key takeaways:...Read more

What are the benefits of having a 1099 job?...Read more

What's a 1099 worker or employee?...Read more

What are the benefits of a 1099 job?...Read more

Key takeaways:

The word 1099 jobs is commonly used to refer work taken up by freelancers and self-employed individuals
The term 1099 worker is commonly used to refer to self-employed individuals and freelancers that ultimately use the IRS Form 1099 to file their taxes.
One of the major benefits of being a 1099 worker is that you get to be your own boss.

So a 1099 job is more like a gig for a self-employed person that owns a business. Self-employed individuals differ from W-2 employees, as the latter doesn’t receive any 1099 forms. Having a 1099 job means you are your boss, which, although it comes with huge responsibilities, has many benefits. Here, we will look at the pros and cons of being your own boss and how 1099 jobs could be better than a full-time job

What are the benefits of having a 1099 job?

Think of a perfect hero story. Entrepreneurs could be ideal subjects if you look at the number of obstacles to success. You must develop ideas, scale up your business, deal with clients, look for expansion opportunities and accomplish your day-to-day tasks. But, beyond this noise, there are many benefits of being a self-employed entrepreneur, also known as 1099 workers or employees.

What's a 1099 worker or employee?

Just to set the record straight, 1099 employees are not precisely employees, but they are self-employed individuals that could sometimes be referred to as 1099 employees or 1099 workers. This is just common terminology, and if you hear someone refer to you as a 1099 worker, you can forgive them for using this mildly offensive term. It could sound mean to you if you are self-employed to eliminate the employee tag. Since all self-employed individuals have to file the 1099-NEC, the masses have conveniently put 1099-employee or 1099-worker in everyday usage.

Image with text explaining the origin of the term "1099 worker/employee" and its relation to IRS Form 1099 and taxes. No mention of self-employment or freelancers.

What are the benefits of a 1099 job?

The most obvious benefit of being a 1099 worker is that you get to be your own boss. You have the freedom to set your schedule, get significant tax write-offs and many other benefits listed below

Freedom to choose

When you are a 1099 worker, you have the liberty to choose your clients and gigs, especially if you have your own business. This is also partly true for freelance delivery drivers working with third-party apps like Postmates, Uber or Lyft. Although self-employed people have a higher level of autonomy, freelance delivery drivers can also choose the times they want to drive. However, depending on your work, you might have to accommodate your client's needs. For example, if you are a self-employed nurse, you might have to accommodate the individual patient's needs. Also, in the same setting, you might be bound to offer certain services at certain times, including when there's an emergency.

Pay significantly fewer taxes

One of the main differences between a W-2 employee and a 1099 worker is that a 1099 worker benefits from a larger deduction from their taxable income. When working as a self-employed individual, you can deduct many qualifying business expenses, significantly lowering your taxable income. Let's say you are a freelance digital marketing executive and your annual taxable income is close to $55,000. Under normal circumstances, you'll pay around $9,000 in taxes. But as a 1099 worker, you can lower your taxable income, thanks to business expense deductions. In the above example, let's find the taxable income after considering the following deductions:

Work from home deduction: $3,000
Business meal with possible clients: $3,500
Work-related travel: $2,500
Office essentials (like table, chair, lamp): $3,200
Subscription to work-related training: $5,500

These deductibles add up to a total of $17,700. The taxable income now stands in a lower tax bracket of $995 and $40,525. You'll now be taxed at 12% instead of 22%. The final tax to be paid is now $4,723 less than $9,000. The only problem is that to find these deductions, you'll have to classify all the expenses manually, which is a time-consuming process. To speed things up, you can use FlyFin, which uses A.I. to find all your business expenses in minutes. FlyFin's 1099 tax calculator is another great tool to help you with figuring out your self-employment deductions.

You’re in control of your 1099 job

As a self-employed individual, you are constantly overworked, but on the bright side, you have the opportunity to create your schedule, the place you work and the time you want to work on a specific task. Besides, you can also frequently change industries, which for a W-2 employee would mean changing a job. For example, if you are a freelance marketing automation person, you could have clients in several industries at any time. So your skill in managing marketing emails, broadcasting brand messages and attracting customers is helpful in multiple industries. But of course you still need to make estimated tax payments with this gig.

Modified Adjusted Gross Income

Modified Adjusted Gross Income (MAGI) can be found by adding back certain deductions to AGI. Use MAGI to check your eligibility for tax credits.