If you earned income working as an independent contractor, freelancer, gig worker, or self-employed individual, the program may ask you to complete a Schedule C (Profit or Loss From Business).
This usually happens when you enter income reported on a:
- Form 1099-NEC
- Form 1099-MISC reporting nonemployee compensation for older tax years
- Form 1099-K related to business activity
- Other self-employment income
Why Is a Schedule C Required?
When you work as an employee, your employer withholds and pays a portion of your Social Security and Medicare taxes. You pay part of those taxes through payroll withholding, and your employer pays the other portion.
However, when you're an independent contractor or self-employed, there is no employer paying part of those taxes on your behalf.
Instead, you report your business income and expenses on Schedule C, and the program uses that information to calculate your:
- Net business profit or loss
- Self-employment income
- Self-employment tax
- Qualified Business Income Deduction (if eligible)
What If I Received a Form 1099-NEC?
If you received a Form 1099-NEC showing income in Box 1, the IRS generally considers that income to be self-employment income unless the facts indicate otherwise. Because of that, the income is typically reported on Schedule C.
Common examples include:
- Freelance work
- Consulting income
- Gig-economy earnings
- Rideshare driving
- Independent contractor services
- Self-employed business income
What If I Received a Form 1099-MISC?
For older tax years, nonemployee compensation was commonly reported in Box 7 of Form 1099-MISC.
If the income represents payment for services you performed as an independent contractor, that income is generally reported on Schedule C in the same way as a Form 1099-NEC.
What Does Schedule C Do?
Schedule C allows you to report:
Business Income
Examples include:
- Payments from customers or clients
- 1099-NEC income
- Business-related 1099-K income
- Cash payments for services
Business Expenses
Examples include:
- Supplies
- Advertising
- Vehicle expenses
- Home office expenses
- Professional fees
- Business insurance
After income and expenses are entered, the program calculates your net profit or loss.
Will I Owe Self-Employment Tax?
If your business activity produces sufficient net earnings, the program will generally generate Schedule SE to calculate your self-employment tax.
Self-employment tax consists of:
- Social Security tax
- Medicare tax
These taxes are similar to the payroll taxes paid by employees and employers, except self-employed individuals are responsible for both portions.
What If This Wasn't Self-Employment Income?
Not every Form 1099 automatically belongs on a Schedule C.
In some situations, the income may not be related to a trade or business. For example:
- Certain prizes or awards
- One-time activities not conducted for profit
- Personal transactions reported in error
If the income wasn't earned as part of a business or self-employment activity, the appropriate reporting method may be different.
Be sure the income is being reported according to the nature of the payment and the facts of your situation.