What Is 'Nonemployee Compensation' on a 1099 Form?

by Gregory Hamel
Contract workers may receive Form 1099-MISC from clients.

Contract workers may receive Form 1099-MISC from clients.

The Internal Revenue Service requires you to report all the income you earned during the year on your tax return, even if you didn't work a normal job. Employees receive information about the income they earn on Form W-2, but if you work as a contractor or freelancer, you might receive different tax forms documenting your earnings. Nonemployee compensation is a type of self-employment income reported to you on Form 1099-MISC.

Form 1099-MISC

Form 1099-MISC is used by businesses to report miscellaneous income paid to people other than employees, such as professionals they hire to perform services. Several types of income are reported on Form 1099-MISC, including royalties, rents, proceeds paid to attorneys and nonemployee compensation. If you are self-employed and have several clients, you may receive a 1099-MISC from each one. A company is required to send you a 1099-MISC if it paid you $600 or more for your services during the year. Your copy of the form should be mailed to you by Jan. 31, but you are required to pay taxes on the income even if you don't receive your copy.

Nonemployee Compensation

Nonemployee compensation is listed under box 7 of Form 1099-MISC. According to the IRS, nonemployee compensation include fees, commissions, prizes and awards you receive for services performed as a nonemployee. You are not considered an employee if you have ability to choose what work you do and how to accomplish it. If you worked as a fisherman, box 7 may show cash you received for the sale of fish.

Self-Employment Tax

Employees share the cost of paying for Social Security taxes and Medicare with their employers. When you work as a contractor, you are considered a business owner, so you have to pay the full amount of Social Security taxes and Medicare yourself on all nonemployee compensation through self-employment taxes. For the 2013 tax year, the self-employment tax includes a tax of 12.4 percent on the first $113,700 of income for Social Security and a tax of 2.4 percent on all income for Medicare.

Estimated Taxes

When you earn money as an employee, your company holds back some of your pay to cover the taxes you owe. Nonemployee compensation isn't subject to tax withholding, so it’s up to you to send the taxes you owe to Uncle Sam through quarterly estimated tax payments. The IRS lets you submit estimated payments online using its Electronic Federal Tax Payment System.

About the Author

Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.

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