Can I Get a Tax Refund with a 1099? | Freelance Taxes Explained — 1099 Cafe (2024)

A Quick Overview: About 1099 Forms

You received a 1099 form and are wondering what to do with it. Can you get a tax refund with a 1099? This is not a yes or no question, it very much depends on your situation. In most cases, you would only receive a 1099-NEC if you’ve done work or provided a service that you were paid over $600 for. Depending on which one of the following, your tax situation will vary. Are you a(n):

• Independent contractor, doing only contract work full time? I.e. you paint houses under your own business and receive payments from various clients.

  • Typically in this situation, you would not receive a tax refund–because you haven’t been “pre-paying” taxes via withholding, so you should actually owe taxes.

• A full-time employee with some side income? I.e. you have a full-time job as a graphic designer–occasionally you take on your own clients and make designs for them, and are paid over $600 by one or multiple clients.

  • Typically in this situation, if your side income is small compared to your full-time job, your tax situation would be unaffected. Meaning, if you usually get a refund, you would probably continue to receive a refund and also vice versa (if you owe taxes, continue to owe). Note that this can vary a lot depending on your W4 withholding (set a lot of taxes aside, versus not a lot per paycheck).

Taxes for independent contractors, or freelancers, work differently. First of all, you don’t receive regular paychecks and you also don’t receive a W2 at the end of the year. Instead, you should receive 1099-NEC forms from each client that has paid you over $600.

So, you might be wondering “Can I get a tax refund with a 1099?”. The short answer is–typically no.

As an independent contractor, you won’t have tax withholdings (money that is “pre set aside” from your paycheck to pay for taxes) like an employee would. This means that you get paid the full amount for your work/services, without any taxes having been paid. Let’s see an example:

A full-time employee gets paid $2,000 on their bi-weekly paycheck, it would look something like this:

Gross pay: $2,000

minus Federal taxes withheld: $500

minus State taxes withheld: $250

minus Social Security, Medicare, Medicaid (FICA) withheld: $125

Total net (take-home) pay: $1,125

An independent contractor gets paid $2,000 for a project they completed:

it would simply be the full $2,000 paid via check, electronic transfer, or an invoice you sent out paid via CC or ACH. In this example, you’ve not set aside $875 of taxes between Federal, State and FICA taxes.

So, you might be wondering “If I file a 1099, will I get tax money back?”

In this scenario where you only did contract work, you absolutely would not get a tax refund, in fact, you owe a lot of taxes. This is because you were paid $2,000 and you have not yet paid any taxes on that amount, versus an employee who would have had taxes withheld from each paycheck throughout the year. Keep in mind that we are simplifying the situation and these do not take into account any deductions.

No–this is not unfair. You can think of full-time employees always “pre-paying” their taxes, versus independent contractors not pre-paying.

So, what should you be doing as an independent contractor?

Quarterly Tax Payments | How to Pay Your Taxes as a Freelancer

As a freelancer, things are not as “automatic” for us. If you make significant income, you need to be estimating your annual income and making quarterly tax payments at the Federal level, and also at the State level (if applicable, some states don't have income tax). You can do this a variety of ways, but the simplest way is to just:

1. Open a spreadsheet, estimate your annual income

2. Multiply your annual income by the appropriate tax rate. This will be a number of different rates based on the tax brackets. For example, if you made $45,000 here’s what Federal taxes would look like:

Your taxable income: $45,000 - $12,550 (Federal standard deduction) = $32,450

Tax liability is:

$995 plus

any amount over $9,950, or: 12% x ($32,450 - 9,950) =

$2,700

Your Federal Tax Owed: $3,695

1. Divide this amount by 4 = $923.75 and make this payment each quarter. You can do this online at IRS DirectPay

2. Repeat the steps 2 and 3, but with the State tax rates instead and pay at your corresponding State electronic payment portal

Here are the general Federal deadlines for making these payments:

Now, let’s talk about situations where you may have both a full-time job and also perform some contract work.

In this scenario, it’s very possible that you could still get a tax refund if you receive a 1099-NEC? Why is this? Because as we explained above, a full-time employee has taxes withheld from every paycheck throughout the year.

For many, the tax withheld is often more than what they actually owe when tax liability is calculated at the end of the year, this is why there are even tax refunds in the first place.

Whether you will actually get a tax refund depends entirely on multiple factors:

• What is your withholding rate? This is dictated by your W4 form, filed with your full-time job’s HR/payroll department

• How much did you get paid as side-income? Is it a lot compared to your full-time job, or only a small amount? If a small amount, it’s unlikely you will change your net tax liability at EOY.

• What are your deductions? Do you have large itemized deductions you can claim that would lower your tax liability?

Examples of the numbers, in detail (simplified, no deductions taken into account):

Full-time employee with adequate withholdings and side-income:

Annual gross pay: $80,000

Side-income pay: $5,000

Total pay: $85,000

Taxes owed (est. 30%): $25,500

Taxes withheld throughout the year from paychecks: $30,000

Tax liability/refund = $25,500 - $30,000

Tax refund: $4,500.

Side income had no effect on tax liability, individual still gets a tax refund, just a smaller amount due to added side income

Full-time employee with some withholdings and side-income:

Annual gross pay: $80,000

Side-income pay: $5,000

Total pay: $85,000

Taxes owed (est. 30%): $25,500

Taxes withheld throughout the year from paychecks: $25,000

Tax liability/refund = $25,500 - $25,000

Tax owed: $500

Due to smaller withholdings, side income had an effect on tax liability, individual now owes $500 in taxes

FAQs:

Does 1099 help or hurt my tax return?

A 1099 neither “helps” or “hurts” your tax return. If you received a 1099, it’s simply income. If you have more income, you generally have to pay more taxes–but that’s better than not having extra income so it’s not “hurtful”

How much will I pay back in taxes 1099?

Exactly how much you pay in taxes from receiving 1099s entirely depends on your situation. Income from 1099s are subject to the same taxes as any other income, like at a full-time job. The exception is with 1099s, you have to pay the full self-employment tax of 15.3%, but you can claim half of it as a deduction. Many 1099 workers can actually reduce their tax liability more through eligible expenses when compared to their full-time worker counterparts.

How do I get the most money back from 1099?

As a 1099 worker, you’re able to use eligible expenses as a deduction against your income. Here are some common deductions:

1. Standard mileage deduction, if you use your car

2. Health insurance premiums

3. Work supplies (paper, pens, organizational items)

4. Work travel (meeting clients, going to conferences)

5. Business insurance

6. Software (Adobe Photoshop, QuickBooks)

7. Home office (portion of your home use exclusively for work, like 15% of rent)