If the agency sent you a 1099-MISC instead of a W-2, they regard you as an independent contractor, not an employee. Independent contractor income is considered self-employment income by the IRS, and is correctly reported on Schedule C or C-EZ.
As far as the IRS is concerned, you are a self-employed "business." On Schedule C, enter your own name and address as the business name and address.
If the 1099-MISC is your only income for the year, you must file a tax return if the net income is $400 or more.
If you have other income requiring a tax return, you must include the 1099-MISC. It is not tax-free.
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
