A 1099 consultant is an outside contractor who works under contract for a company. Running a 1099 consulting company means you receive annual tax forms from various contracts listing the amount of money they paid you that year.
Every client or customer of your freelance business who has paid you wages of $600 or more are required by law to send you one of the 1099-MISC forms.
Since 1099 workers aren't on payroll, you will need to manually pay them via cash or check or an online solution such as PayPal or Venmo. To further simplify things, you can also use payroll services and software like QuickBooks to automatically track invoices and make payments for each independent contractor.
Hourly rate
Essentially, the consulting rate is calculated by taking your current rate and multiplying it by 2 or 3. An hourly rate of $35, for example, means that your consultancy rate should be $70 or $105.
Cash payments of $600 or more to an independent contractor should be reported on a 1099 form, regardless of the payment method. Neglecting to issue the appropriate tax forms for cash payments can lead to tax implications and penalties.
1099 employees must pay their own taxes.
1099 employees are responsible for paying their own self-employment taxes, as well as income taxes. 1099 employees are not to have any taxes withheld from their paychecks.
While 1099 contractors face higher self-employment taxes, the ability to deduct business expenses can offset these costs. In some cases, this can lead to a lower overall tax burden compared to W-2 employees. However, the complexity of tax filings and the need to manage quarterly payments can make it more challenging.
The most common way for self-employed consultants to pay tax is through four quarterly tax payments. For this example, this would equate to $7,993.76 each quarter. To help you make the calculations for your specific earnings, you can use the 1040-ES IRS form to estimate your taxes.
How much does a 1099 Contractor make in California? As of Jan 6, 2025, the average hourly pay for a 1099 Contractor in California is $36.41 an hour.
For tax filing purposes, you can provide your house cleaner with a Form 1099 after the year is over if you paid them a total of at least $600.
The IRS defines "gross income" as "all income from whatever source derived." Included in gross income is compensation for services, including fees and commissions. If a business pays you $600.00 or more in a year for your consulting fees, they have to report it to the IRS on form 1099-NEC.
Someone who works as a 1099 commission sales representative often completes a 1099-MISC form, which their employer provides to them. If a representative has earned over $600 in a year from their commission work, they file their own self-employment taxes.
For tax year 2025, the threshold is $2,500, regardless of the number of transactions. For tax year 2026 and after, the threshold is $600, regardless of the number of transactions.
The state now requires that anyone filing a 1099 either has an LLC associated with their operations as a contractor or that they fully incorporate their business.
Employees receive salaries or wages, benefits and have legal protections, such as labour laws and worker compensation insurance. In contrast, a consultant is an independent contractor who offers specialist expertise or services to a business on a temporary basis.
What this means for you is that it is your responsibility to issue a 1099-NEC or 1099-MISC if you've paid a contractor $600 or more throughout the calendar year using Zelle®.
Will the IRS catch a missing 1099? The IRS knows about any income that gets reported on a 1099, even if you forgot to include it on your tax return. This is because a business that sends you a Form 1099 also reports the information to the IRS.
Payments for Services
When a business pays an independent contractor for services performed in the course of that business, the service recipient must file Form 1099 MISC if the payment is $600 or more for the year, unless the service provider is a Corporation.
Consultants who have their own consulting firm are typically paid an hourly rate or a flat fee per project. In some cases, they may also receive a commission for completing a project that helps the business save money or increase revenue. However, most consultants are paid based on the number of hours they work.
You don't need one, but we recommend one. Why? As an independent consultant, you're now running your own business.