The correct answer explains a practical reality of 1099 (nonemployee) income: it typically comes with no employer withholding, which means the earner is responsible for setting aside money and often making estimated tax payments. Nonemployee income — freelance, contract, gig work — is taxable just like wages, but because no employer is withholding income tax, Social Security, or Medicare on your behalf, taxpayers receiving 1099s should plan to reserve a portion of each payment for income and self-employment taxes. Self-employment tax covers the equivalent of employer and employee Social Security and Medicare contributions and is computed separately in many systems. Not setting money aside is a common cause of year-end shocks when a taxpayer who treated 1099 receipts as spendable discovers a large tax bill. Practical guidance: when you receive non-withheld income, calculate a conservative percentage to save (common ballpark figures are 20–30% depending on income and expenses) and place it in a separate account.

In addition to saving a portion of gross receipts, 1099 earners should track business expenses to reduce taxable net income: home-office expenses where eligible, supplies, equipment depreciation, mileage, and other ordinary business costs can lower net self-employment income. Keep thorough records and receipts, invoice promptly, and consider paying quarterly estimated taxes if you expect significant liability. Estimated payments reduce or eliminate underpayment penalties and spread tax payments across the year. If self-employment is long-term, plan for retirement contributions that can lower taxable income and for paying both income and self-employment tax obligations. Finally, consult a tax professional or reliable tax guidance for rules about deductible expenses and filing requirements for nonemployee income — the administrative details can make a big difference in net tax owed.