What Is "Nonemployee Compensation" on a 1099 Form?

by Randolf Saint-Leger ; Updated September 11, 2015
Form 1099 covers is a wage statement for the self-employed.

Form 1099 is an informational statement that provides the IRS with wage information for an independent contractor considered as self-employed. For this reason, employers treat an independent contractor, sometimes referred to as 1099 worker, as a non-employee. Under this arrangement, the employer pays the independent contractor but does not consider her as one of its regular employees subject to employment tax withholding. Thus, non-employees have the responsibility to file and submit taxes on their own.

Non-employee Status

Form 1099 serves the same purpose as a W-2, which details wages, tips and other forms of compensation earned throughout the calendar year. The IRS uses Form 1099 to make a distinction between a regular employee and an independent contractor or worker. An employer deducts income and Medicare and Social Security taxes from an employee, but is under no such obligation to do the same for a non-employee.

Non-employee Compensation

"Nonemployee compensation" appears in box 7 on Form 1099. The amount that appears under nonemployee compensation is gross income, devoid of any withholding taxes. This is the total wages the employer paid to the independent worker throughout the calendar year.

Paying Taxes

A non-employee is responsible for his own taxes throughout the year. Based on the recommendation of the IRS, a non-employee should make estimated income tax payments as income is earned. In addition, a non-employee is subject to self-employment taxes of 13.3 percent, split as 10.4 percent for Social Security and 2.9 percent for Medicare Paying too little taxes or no tax increases your tax liability when it comes to file income taxes as a non-employee.


As a non-employee, you have limited workers' rights protection. For example, non-employees are not entitled to workers' compensation or unemployment benefits. In addition, a non-employee does not receive employee perks or benefits such as a company-sponsored 401k plan, medical benefits or holiday and sick pay. On the flip side, the IRS allows the self-employed to deduct business expenses that an ordinary employee may not. If you are self-employed, consult with a tax professional to maximize your deductions.

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