You probably won't receive a tax refund if you never paid any taxes on your 1099 income, but it's sometimes possible. Not all 1099s are created equally and there are several different kinds of them. The 1099-INT reports interest income and the 1099-DIV reports dividend income. Then there’s the 1099-G for unemployment benefits and state and local tax refunds, not to mention a few more. But the 1099-MISC is the most commonly known.
It is possible to receive a tax refund even if you received a 1099 without paying in any estimated taxes.
The 1099-MISC reports income received as an independent contractor or self-employed taxpayer rather than as an employee. You should receive one from anyone who pays you at least $600 for your services over the course of the year, although there are some exceptions to this rule. This doesn’t necessarily mean one payment of $600 or more. Three payments of $200 each should result in a 1099-MISC being issued to you.
Even if you did not receive a 1099-MISC, you still have to report the income on your tax return. Not reporting 1099 income is like waving a red audit flag at the Internal Revenue Service because the IRS receives a copy of all the 1099s you receive, too. Your 1099-MISC income is considered to be self-employment income if the amount you were paid appears in box 7 as “nonemployee compensation.”
Taxes on 1099 Income
Unlike with income earned as an employee, no one is going to conveniently withhold taxes from your 1099 earnings and send that money to the IRS on your behalf. You have to remit payment yourself and the IRS wants you to do so quarterly if you expect that you’ll owe more than $1,000 for the year. You’re expected to calculate how much you think you’ll owe as the year goes on, including both income tax and self-employment tax if your income appears in box 7.
If you don’t remit these estimated quarterly tax payments, it becomes unlikely that your tax return will result in a refund. In fact, if you underestimate or don’t pay anything at all, the IRS can impose a penalty.
You see where this is going. You’re probably going to owe money when you file your tax return in April. A tax refund is what happens when you’ve paid in too much in taxes over the course of the year. The IRS is returning that overpayment to you. If you didn’t pay in, there’s generally nothing for the IRS to refund.
Can I Get a Tax Refund With a 1099?
Of course, this is tax law so the issue isn’t always quite that simple. Under some circumstances, you might receive a refund even if you didn’t make estimated quarterly payments on your 1099 income.
You might hold down a regular job as an employee as well and maybe you asked your employer to withhold additional taxes from those earnings to cover the tax debt you weren’t addressing by making estimated payments. If all this withholding ultimately exceeds the amount of your tax due, you’ll get the money back as a refund.
Then there are those refundable tax credits. Not all tax credits are refundable – in fact, very few are – but they act just like payments you made to the IRS when they are. You might think that you didn’t pay anything because you didn’t physically write a check, but that might not be the case.
A refundable tax credit can erase the tax you owe the IRS, much like an estimated tax payment would. Then, if any of the credit is left over, the IRS will send you a check for the difference. It’s conceivable that you could indeed receive a refund in this case.
Here’s an example. You’ve finished your tax return and you owe the IRS $900. Then you realize that you’re eligible for a $1,000 refundable tax credit so you go back and revise your return to claim it. The credit eliminates the $900 you owe and the IRS will refund $100 to you. It's not much but it's better than nothing.
Refundable Tax Credits in 2018
Refundable tax credits available for the 2018 tax year include the earned income tax credit, the additional child tax credit and the health coverage tax credit. The American Opportunity tax credit can be partially refundable.
Some Changes Since 2017
You can also potentially whittle away at that figure that appears in box 7 if you receive a 1099-MISC, although this isn’t always possible with other types of 1099 income. If you’re self-employed, you’re permitted to subtract your business expenses from what you earned by completing Schedule C and you would only have to pay taxes on the balance. And the less income you have to pay taxes on, the more likely it becomes that over-withholding from your paychecks or a refundable tax credit might result in a refund.
As of 2018, deductible business expenses include things like the cost of supplies, equipment, business mileage and even a home office. The IRS says the expense must be “reasonable and necessary.” In other words, it’s common for anyone working in your particular trade or business and spending money on it helps you make money.
Unfortunately, the Tax Cuts and Jobs Act that went into effect in January 2018 eliminated the deduction for unreimbursed employee business expenses. In 2017 you could deduct the cost of work-related expenses provided that your employer did not reimburse you – another way of reducing your taxable income and overall taxes due if you also had a regular job, possibly resulting in a refund. But this is no longer the case.
- Intuit Quickbooks: 6 Common Mistakes Made on 1099s and 4 Tips to Avoid an Audit
- IRS: 1099 MISC, Independent Contractors, and Self-Employed
- Telephone Assistance | Internal Revenue Service
- IRS: Estimated Taxes
- US Tax Center: Refundable vs. Non-Refundable Tax Credits
- IRS: Deducting Business Expenses
- H&R Block: Can I Deduct Unreimbursed Employee Expenses?
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.