Now if you’re asking yourself, "How will a 1099 affect my tax return?", you'll be required to pay
federal income tax on that amount reported on any 1099 you receive.
Since there's no tax withheld from income reported on a 1099 form, you will be responsible for paying the entire 15.3% of the FICA (Federal Insurance Contributions Act) tax on your net income. 12.4% of this amount accounts for Social Security tax, while the remaining 2.9% accounts for Medicare tax.
This is not the case for employees who receive a W-2 form and don't have any 1099 income, as they will only have to pay half of the FICA tax, i.e. 7.65%, because the rest is covered by their employer. But there is some good news for freelancers and self-employed individuals: that second half of the FICA tax is deductible, so you can write it off from your taxable income.
All this may seem like receiving a 1099 form means you’ll end up paying more tax, but the opposite is actually true. Many people who work for themselves can pay less tax than an employee at a company, because they qualify to claim some of their business expenses as
deductibles and lower their tax bill significantly!
Does keeping track of all your business expenses and saving your receipts sound like a lot of work? It doesn't have to be. With
Flyfin, you can link your expenses and watch the A.I.-powered tax engine find every possible deductible to save you money and time come tax season. If you have tax questions at any time, you can also reach out to our expert CPAs, 24/7, for unlimited answers free of cost.