Taxable Income

• Generally, income that appears on a 1099 MISC form is taxable as ordinary income. However, you can deduct certain items from the income you receive, such as business expenses. You would receive a 1099 MISC form for any work performed as an independent contractor and for payments you received from large direct sales, for example.
  
  

Income Taxes

• Taxpayers often file their income taxes and forget to include income on a 1099 MISC form. However, the IRS receives a copy of the 1099 MISC form, too, and will notice the discrepancy. If you neglected to claim 1099 MISC income on your individual income tax return, you must do so by filing a 1040X (Amended U.S. Income Tax Return), a copy of the 1099, and an updated Form 1040 or 1040A. You cannot use a Form 1040EZ to account for 1099 income.
  
  

Self Employment Tax

• Generally, you must also pay self-employment tax on your Form 1099 income as well. As of 2011, self-employment tax consists of an employee contribution of 1.45 percent for Medicare tax and 4.2 percent for Social Security. For tax year 2012 and later, however, the employee contribution will be 6.2 percent for Social Security. The Social Security portion of the tax applies only to the first $106,800 of income. Because you are your own employer for the purposes of 1099 income, however, you must also pay 1.45 percent and 6.2 percent for Medicare and Social Security taxes.
  
  

State Taxes

• Your tax liability is not limited to the IRS; you may also have to pay back taxes on the 1099 MISC income to state revenue officials. State laws vary, and not all states levy an income tax. Contact your state department of revenue and follow the instructions for your state.