Paid on a 1099? What You Owe and What You Can Deduct

If you were paid on a 1099, nothing was withheld from your pay — not income tax, not Social Security, not Medicare. When you file, you owe regular income tax plus self-employment tax at 15.3% on most of your profit. The part people miss: both are figured on what you kept after business expenses, not on what you billed. Every legitimate expense you document lowers both bills.

This guide is for contractors, freelancers, delivery and rideshare drivers in Austin who want to see the numbers before they file: what each tax costs, which forms your return needs, the IRS mileage rates, how the 20% QBI deduction works, and when estimated payments are due. And if you extended your 2025 return, the filing deadline is October 15, 2026.

Why do 1099 workers end up owing at tax time?

On a W-2, your employer withholds from every paycheck and pays its own half of Social Security and Medicare on top. On a 1099, you get paid in full, and for tax purposes you are both the employee and the employer.

Two things follow. The whole bill arrives at once when you file. And you cover both halves of Social Security and Medicare, which is what self-employment tax is. A contractor who had a strong year can owe a meaningful amount without having done anything wrong, simply because nobody set the money aside along the way.

One more point that trips people up: the income is reportable even without a 1099. The IRS is explicit that gig and self-employment income has to be reported whether it came in cash, through an app or by bank transfer, and whether or not a form was issued.

How is self-employment tax calculated?

Per the IRS, the rate is 15.3%:

• 12.4% Social Security, which for 2026 applies to the first $184,500 of combined wages and self-employment earnings.
• 2.9% Medicare, with no cap. Above $200,000 (single) or $250,000 (married filing jointly), an additional 0.9% Medicare tax applies.

Three rules move the final number:

1. It applies to 92.35% of your net earnings, not 100%.
2. It kicks in once net earnings reach $400 for the year.
3. Half of it is deductible when your adjusted gross income is figured — the “employer half,” treated the way an employer would treat it.

Illustrative example: $30,000 of net profit × 92.35% = $27,705 subject to the tax. $27,705 × 15.3% ≈ $4,239 in self-employment tax, about $2,119 of which comes off your income before income tax is figured. Income tax is on top of that and depends on your filing status and credits. To see both numbers for your own situation, run them through our tax calculator.

Which forms go on a 1099 return?

Schedule C is where money is won or lost. An expense you forget to record is profit you pay income tax and self-employment tax on.

What can you deduct as a 1099 contractor?

The IRS standard is that an expense be ordinary and necessary for your line of work. These are the ones that come up most often:

Mileage or actual vehicle costs

You can use the IRS standard mileage rate or your actual vehicle expenses (fuel, maintenance, insurance, depreciation) prorated to business use. The official rates:

The IRS raised the rate mid-2026, citing fuel costs, so split your 2026 mileage log at July 1. Example: 8,000 business miles in 2025 × $0.70 = a $5,600 deduction. Personal miles do not count. And if you own the vehicle, you have to choose the standard rate in the first year you use it for business to keep that option open later.

Tools, equipment and supplies

Everything from a drill or ladder to a laptop, software subscriptions and job materials. Keep the receipt for each purchase.

The business share of your phone and internet

If your phone runs your delivery app or your client calls, you deduct the business-use percentage, not the whole bill. If 60% of the use is for work, you deduct 60%. The percentage needs to be reasonable and something you can explain.

Home office

A space in your home used regularly and exclusively for the business qualifies; the dining table does not. The IRS simplified method is $5 per square foot, up to 300 square feet, for a maximum of $1,500 a year. A 200-square-foot office comes to $1,000. The regular method (a share of rent, utilities and so on) can be larger but takes more documentation.

Other common expenses

• Platform and app fees and commissions.
• Payments to helpers or subcontractors.
• Business licenses, permits and insurance.
• Safety gear and work clothing not suitable for everyday wear.
• Health insurance premiums you pay yourself, if you meet the rules for the self-employed deduction.

For a trade-by-trade breakdown, see our self-employed and 1099 tax preparation page.

What is the 20% QBI deduction?

The qualified business income deduction lets owners of pass-through businesses, including sole proprietors filing Schedule C, deduct up to 20% of their business profit from taxable income.

• It works with the standard deduction. You do not need to itemize.
• It lowers income tax, not self-employment tax. The 15.3% is unchanged.
• “Up to” is doing real work. The base is adjusted (half of self-employment tax comes off it, among other things), and the deduction cannot exceed 20% of your taxable income. With modest earnings, where the standard deduction already absorbs much of your income, it often comes out well below 20% of profit.
• Higher incomes face extra limits. For 2025, the simplified calculation applies if taxable income before the deduction is at or below $197,300, or $394,600 for joint filers.

Our tax calculator applies it automatically.

When are estimated tax payments due?

With nothing withheld, the IRS expects you to pay as you go. You generally need to make estimated payments if you expect to owe $1,000 or more when you file. The 2026 schedule:

If you have not made any 2026 payments yet, the next date is January 15, 2027. Paying something now beats waiting for April: the underpayment penalty is figured period by period.

The safe harbor. You generally avoid the penalty if your payments during the year cover at least 90% of this year’s tax or 100% of last year’s, whichever is smaller. If last year’s adjusted gross income was over $150,000 ($75,000 married filing separately), the prior-year figure becomes 110%.

You can pay through IRS Direct Pay from a bank account, EFTPS, your IRS online account (which also shows your payment history), or by mail with Form 1040-ES.

What records should you keep?

• Every 1099 (NEC, K, MISC) and each platform’s annual earnings summary.
• Bank and card statements for business spending — ideally from an account used only for the business.
• Receipts for tools, equipment, materials and any large purchase. A phone photo is fine.
• A mileage log with date, destination, business purpose and miles. A tracking app handles this automatically.
• Home office measurements and your home’s total square footage, if you claim it.
• Confirmation of each estimated payment, with date and amount.

The IRS general rule is to keep records for 3 years after filing, longer in some situations (records for property you are still depreciating, for example). If the paper trail is already a problem, monthly bookkeeping keeps the year organized so tax season is a review, not a reconstruction.

Filing on extension?

An extension moved your 2025 filing deadline to October 15, 2026; it did not move the payment deadline. If you are self-employed, start pulling your 1099s, statements and mileage log now rather than the week before.

Get your 1099 return right

In a free consultation we go through your 1099s, the deductions specific to your trade, and whether you should be making 2026 estimated payments. You get the scope and the fee in writing before any work starts.

Book a free consultation, call (512) 460-8222, or message us on WhatsApp. We are open every day, 8:00 AM to 8:00 PM. More on the service at tax preparation in Austin, TX.