Is there such a thing as gross and net income for a 1099?

[srpiper1]

I am a new contract employee and received a 1099 for my gross income?  If they withhold 10% as a fee from my check then they should claim that as their income and pay taxes on it....correct?  I should only pay taxes on all the money paid to me...correct?

[WillK · Accepted solution]

Yes there is. The gross is the amount that is reported on your 1099-MISC in box 7. The net will be any expenses you have. The 1099-MISC should have the gross amount reported (everything you were paid without their 10% fee) then you would deduct their 10% fee as an expense on your return. 

[srpiper1]

My gross income is what they paid me with the fee or without the fee?  It's confusing how it is phrased above?

[WillK]

It should be without the fee taken out. If they already took the fee out and reported the wages MINUS the fee then report what is on the 1099-they sent BUT you cannot deduct their fee out as an expense

[Janolo71]

Hi there. I’m not clear as well. So should I set aside money based on the net or gross? Also, Is 20% sufficient?

[xmasbaby0]

@Janolo71   Not sure what was going on with the previous user who was having 10% of his check withheld  as a "fee" but was a self-employed contract worker whose earnings would be reported on a 1099Misc.

Hopefully you are not in a similar fishy situation.

If your earnings will be reported on a 1099Misc you can expect to pay 15.3% for Self-Employment tax--Social Security and Medicare--plus ordinary income tax at your tax rate.   If you are being paid without any SS, Medicare or taxes being withheld, you are not receiving "net" pay.  You are receiving only your gross pay.  So please explain if anything is being withheld.  Why do you say you have "net" and "gross" pay?

https://ttlc.intuit.com/questions/2584365-am-i-an-employee-or-an-independent-contractor

https://ttlc.intuit.com/questions/2902389-why-am-i-paying-self-employment-tax

https://ttlc.intuit.com/questions/2903027-how-do-i-report-income-from-self-employment

https://ttlc.intuit.com/questions/1901110-do-i-need-to-make-estimated-tax-payments-to-the-irs

https://ttlc.intuit.com/questions/3398950-what-self-employed-expenses-can-i-deduct

If you are new to being self-employed, SuperUser @VolvoGirl and @Critter have some good advice you should read.

[VolvoGirl]

Your gross amount is the amount on the 1099Misc.  You fill out schedule C for self employment income.  After you enter all your income (1099Misc and cash) you enter your expenses.  That will give you the Net Profit or Loss on schedule C.  You pay tax on a Net Profit over $400.

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  You will need to use the Online Self Employed version or any Desktop program but the Desktop Home & Business version will have the most help.

For the future, you should use a program like Quicken or QuickBooks to track your income and expenses.  There is a QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Online Self Employed  return....

http://quickbooks.intuit.com/self-employed

You need to report all your income even if you don't get a 1099Misc. You use your own records.  You are considered self employed and have to fill out a schedule C for business income.   You use your own name, address and ssn or business name and EIN if you have one.   You should say you use the Cash Accounting Method and all income is At Risk.   

After it asks if you received any 1099Misc it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  You do get to take off the 50% ER portion of the SE tax as an adjustment on Schedule 1 line 27.  The SE tax is already included in your tax due or reduced your refund.  It is on the Schedule 4 line 57.  The SE tax is in addition to your regular income tax on the net profit.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

You can enter Self Employment Income into Online Deluxe or Premier but if you have any expenses you will have to upgrade to the Self Employed version.  How to enter self employment income

https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...

[FeesonGrossIsAScam]

In Box 7 many companies report the Net amount after fees are taken out.  As a former real estate sales manager, I can tell you many 1099s as well as Managers have zero idea on how to calculate pay-fees on gross receipts. Not all companies do the math this way. Some companies calculate fees on net receipts. Many of these companies are practicing tiered franchising but not disclosing. Some aren't even a franchise. It should state in the contract fees are on gross receipts.  Some states also have business opportunity laws (but now I am going down a rabbit hole).  It's difficult to deduct a royalty payment if the 1099 worker doesn't even know they were paying royalties aka "brand fee" or "marketing fee".  Uber, Lyft, Doordash, Wag, and many real estate companies all calculate their fees based on gross receipts. If it's a publicly traded company, you can read the 10K and usually find out if the 1099s are paying royalties. I just pulled out my old 1099 from two different real estate companies.  They are both reporting the amount paid to me AFTER fees and royalties deducted.  My advice, if the company won't give you a break down and math on deductions, RUN.  Transparency is kinda of a thing these days. PS. Franchising and 1099s don't mix.  

[bp1962]

I am an Agent with a Real Estate Company that pays Commissions. On occasion I take loans against my commissions, thereafter the broker deducts the amount of the loans from my commissions, then makes a net payment to me. My Question, how can the Real Estate Company issue a 1099 to Me for amounts not paid to me, when they repaid the commission advance loans directly to the loan company.

[GeorgeM777]

Ordinarily, a loan is not considered income to the recipient because there is implied in each loan a promise to repay.  However, in your case, it appears that you did not repay the loan with separate funds, but rather you directed or authorized the Real Estate Company to deduct the balance of your outstanding loan against commissions owed to you.  If the Real Estate Company did not reduce your commissions by the outstanding loan amount, we assume they would have paid your commissions in full, and thereafter, you would have used your commissions to repay the loan.  Based on these facts, it appears that the 1099 (Misc or NEC) issued to you that reflects all the commissions you earned, including the commissions that were deducted by the Real Estate Company to pay-off your loan, is accurate.  

@bp1962