You got a 1099 and now you owe. Here is why.

Every spring someone sits down in my office with a 1099 and a worried face. They worked hard all year, nothing was taken out of their pay, and now there is a bill. It is not a mistake. It is how self-employed income works.

Nobody withheld tax for you

When you are an employee, your employer takes tax out of every paycheck and sends it in. When you are paid on a 1099, you receive the full amount, and the tax is settled when you file.

There are two taxes, not one

You owe income tax, like everyone else. You also owe self-employment tax, which covers Social Security and Medicare. It is 15.3% of your net earnings, because you pay both the employee's half and the employer's half. It applies once your net self-employment earnings reach $400 for the year.

What brings the bill down

• Business expenses you can support with records: supplies, software, phone, a share of your home if you truly work from it.
• Business mileage, if you kept a log.
• A deduction for half of your self-employment tax.

Estimated payments

Estimated tax is generally due in April, June, September and January. The dates for this year are on our tax calendar. I can work out the amounts with you so there are no surprises next spring.

Read more about tax preparation for the self-employed.