A 1099 contractor, or, more accurately an independent contractor, is a legal and tax-related term used in the United States to refer to the type of worker that contracts his or her services out to a business or businesses. The "1099" refers to the Internal Revenue Service (IRS) form that an independent contractor receives stating his or her income from a given business in a given tax year. A 1099 contractor is not an employee of the business or businesses with which he or she works, instead he or she is an independent contractor, or consultant, who is considered to be self-employed. Being a 1099 contractor can offer extraordinary freedoms, but, like most things, it can be considered to have some downsides as well.

1099 contractors who make more than 600 US dollars (USD) per year are issued 1099 forms from the business(es) that paid them. On their income, 1099 contractors must pay pay income and social security taxes; employees must do the same. The difference is that employers generally withhold taxes on the employee's behalf. Additionally, employers generally cover half of the total Social Security and Medicare taxes, currently a 15% tax of net income, meaning that the employer cover 7.5% on behalf of the employee.

Because an independent contractor is considered self employeed, he or she is essentially the employer and employee. Therefore, the 1099 contractor is responsible for withholding his or her own taxes and paying the total amount of the Social Security and Medicare taxes. Because the 1099 contractor is not making installments against his or her annual tax responsibility, as the employee does by the withholdings made on his or her paychecks, the 1099 contractor is supposed to make quarterly installments against his or her projected tax responsibility for the year.

There are deductions that can be made to reduce tax obligations. These include work-related expenses such as home office costs and vehicle costs if the car is used for a work-related purpose. A computer, for example, that is purchased in order to work as an independent contracter, may be deductible from an independent contractor's net income. A 1099 contractor should save all pertinent business receipts for the year in order to claim these as business expenses.

The 1099 contractor generally has scheduling advantages over the employee. Often, he or she is not beholden to the typical 9am to 5pm workday and Monday through Friday work week as the average employee is. Deadlines, of course may confine the 1099 contractor's work schedule. On the other hand, the 1099 contractor generally doesn't get the benefits that employees often do, such as time off with pay whether it be due to illness or leisure.

Further, there are different legal implications for a 1099 contractor than an employee. These implications can vary greatly based on the specific contract terms between the contractor and the client or business. In many cases the 1099 contractor can be discharged at will, with or without cause. Additionally, the 1099 contractor is usually responsible for his or her own health insurance and retirement benefits, as the companies worked for are under no obligation to provide benefits.

The 1099 contractor is also usually not protected by minimum wage laws. In fact, some independent contractors work below minimum wage. In all cases, a 1099 contractor's payment is assessed by the completion of a job, not by the hours worked. When a job takes more time than expected, earnings may fall below minimum wage. Yet the skilled independent contractor can work for far above minimum wage, particularly those who have expertise in a specific field and work on a consultant basis.

1099 contractors exist in multiple fields, from hospital planners, to marketing consultants, to building contractors, to freelance writers. When balancing the tradeoffs between working as a 1099 contractor or an employee, many things should be considered. Perhaps the largest consideration is the fact that way the worker is compensated for his or her services is very different. The 1099 contractor payment scheme requires more independence and responsibilty as things such as medical and dental benefits, savings to cover future sick and vacation days as well as tax obligations fall solely within the purview of the worker. On the other hand, the employee is assisted in those responsibilities throughout the year by the employer's contributions and in terms of tax withholdings, the employer's management. Because of the different pay structures, comparing only the hourly rate of an employee and a 1099 contractor is often not a fair comparison.