Businesses who pay an independent contractor more than $600 in a fiscal year must keep records of all payments made to that contractor. At the end of the year, the business must send the independent contractor a form 1099-Misc as a record of all the income earned for work performed for the business. Independent contractors who receive 1099-Misc forms from businesses for whom they worked must use the information contained on these forms to accurately file a tax return at the end of the year.
Locate the amount of income you earned on the form. Box 2 on the form records any royalties the business paid you during the course of the year. Box 3 records any bonuses or non-earned income the business paid you. Box 7, marked "Non-employee income," is the income you received from the business for actual work you performed.
Add the total amounts of Boxes 2, 3 and 7. This is your total income from this individual business and counts as your taxable income. Most independent contractors have more than one client, so if you have multiple 1099-Misc forms, add the total income amounts from all your forms to determine your income for the year as an independent contractor.
Determine the total of your business-related expenses, as allowable by the IRS. Enter these as deductions on your tax return. Subtract this total from your income total on your 1099-Misc form(s). This is the amount on which you are responsible for paying taxes.
Multiply the taxable total income by 92.35 percent. This is the percentage of your self-employed wages which are subject to the self-employment tax, per the 2010 tax rules.
Determine the amount of your self-employment liability tax. If your total income from the 1099 form is less than $400, you have no tax liability and don't owe any taxes. If the amount of your taxable income is more than $400 and under $102,000 as of 2010, multiple the amount of your income by 15.3 percent, or .153. The total amount is your tax liability to the IRS. For example, if your taxable income totaled $10,000, you will owe $153 in taxes.
Calculate your tax liability if your taxable income exceeds $102,000. The process for figuring your tax liability is a little different for those with taxable income above that amount. Multiple the total taxable income amount by 2.9 percent, or .029, then add $12,648 (as of 2010). This is your tax liability for the year.