The 1099 Two-Way Street: A Guide for the Self-Employed

If you’re self-employed, you live in a unique financial world. You are both the service provider and the business owner. This means that when it comes to tax time, you’re not just receiving 1099s for your hard-earned income; you might also be responsible for issuing them. This dual role leads to one of the most common points of confusion I see on a tax return: the Schedule C.

Let’s clear it up.

Key Takeaways

Report All Income: You must report all self-employment income, even if you don’t receive a 1099-NEC for it.
You’re Also a Payer: If you pay an unincorporated contractor $600 or more for business services, you are required to issue them a 1099-NEC.
Collect W-9s: Before paying any contractor, always get a completed Form W-9 from them.
Schedule C Questions: Be prepared to answer the questions on your tax return about your 1099 filing obligations.

Part 1: Receiving 1099s (The Income Side)

As we covered in our first post, you receive 1099-NEC forms from clients who have paid you $600 or more. But here is the most important takeaway I can give you:

You must report ALL your self-employment income, whether you receive a 1099 for it or not.

If a client pays you $500, they aren’t required to send you a 1099, but that $500 is still taxable income you must report. The 1099 is just an informational document; your bank statements are the ultimate record of your income.

Part 2: Issuing 1099s (The Expense Side)

Now, let’s put on your other hat. Did you hire a subcontractor to help with a big project? Maybe you’re a freelance writer who paid an editor, or a web designer who paid a photographer.

If you paid any single unincorporated service provider $600 or more during the year, you are the business owner in that transaction. You must issue them a 1099-NEC, following the same rules we outlined in our second post (get a W-9, track payments, and file by January 31st).

The All-Important Schedule C Question

This brings us to the box on your Schedule C that asks:

“Did you make any payments in 20XX that would require you to file Form(s) 1099?” [Yes/No]
“If ‘Yes,’ did you or will you file all required Forms 1099?” [Yes/No]

The IRS asks this to ensure you’re complying with your tax obligations as a business. Here’s how to answer it correctly:

You will check “Yes” if you paid at least one individual contractor (who is not an S-Corp or C-Corp) $600 or more by check, cash, or direct deposit for business services. If you check yes here, you must also check “Yes” on the second question and file the required 1099s.
You will check “No” if you didn’t hire any contractors, if you paid every contractor less than $600 for the year, if all your contractors are incorporated, or if you paid all of them exclusively via credit card or a third-party payment app like PayPal.

Understanding this two-way street—that you are both a receiver of income and a payer of expenses—is fundamental to managing your freelance finances. It transforms you from just a worker into a true business owner.

Frequently Asked Questions

What if I paid my contractor through PayPal or Venmo?

If you paid them through a third-party payment network (often marked as “Goods & Services”), that network is generally responsible for issuing a 1099-K, and you typically don’t have to issue a 1099-NEC.

Does the $600 threshold apply to a single payment or the whole year?

The $600 threshold applies to the total payments made to a single contractor throughout the entire calendar year.

Can I still deduct payments to contractors if I forgot to issue a 1099?

While you are still legally allowed to deduct valid business expenses, failing to file a required 1099 can result in penalties from the IRS. It’s crucial to file correctly and on time.

Disclaimer: This blog post provides general information about estimated taxes updated 2.19.2025. It is not intended as tax advice. Consult with a qualified tax professional for personalized guidance.