The IRS requires self-employed people to file taxes once they hit a certain income threshold: $400 in net profit from self-employment. The catch is that other factors matter too, including whether clients issued 1099 forms, your filing status, and your state’s rules.
The $400 Self-Employment Income Rule
The IRS sets the bar at $400 in net self-employment income, which is what you earned minus business expenses like software subscriptions, equipment, or contractor services. This threshold applies to anyone who’s self-employed, regardless of other income sources.
At $400 in net profit, you owe self-employment tax to cover Social Security and Medicare contributions. The IRS essentially enforces this threshold and no lower. Below $400, you’re off the hook. Above it, filing is mandatory.
Most freelancers focus only on gross income and miss this. A freelancer earning $2,000 but spending $1,800 on expenses has only $200 in net profit, so they don’t need to file. Someone earning $600 gross with minimal expenses likely exceeds the $400 net threshold and must file.
1099 Forms and Filing Obligations
If a client issued you a Form 1099-NEC or 1099-MISC, the rules change. Clients must issue a 1099 if they paid you $600 or more during the year. This is a filing requirement they’re legally bound to follow.
Here’s what matters: if you received a 1099 showing $600 or more, you must file a tax return even if that was your only income and even if your net profit is below $400. The IRS tracks 1099 forms carefully. Not filing when you received a 1099 raises immediate questions.
But if you earned $700 total from three different clients who each paid you less than $600, no one issued a 1099. Your filing requirement falls back to the $400 net profit rule. The key is tracking all income sources, not just the ones on 1099 forms.
State and Filing Status Considerations
Some states have stricter requirements. California requires filing if you earned $1 in gross income. Other states follow federal guidelines. Check your state’s tax requirements before relying on the $400 rule.
Your filing status also matters. Single filers and married filing jointly have different thresholds when combining self-employment income with wages. A freelancer with a day job might have a higher filing requirement than someone who’s self-employed full-time.
If you’re claiming credits like the Earned Income Tax Credit, you may need to file even below the $400 threshold to claim those benefits.
Tracking Income Throughout the Year
Track income and expenses consistently from day one. Use a simple spreadsheet, accounting software, or tools like Waco3 that track proposals, invoices, and payments in one place. With a clear record of earnings and spending, calculating net profit becomes simple.
Most freelancers wait until January and scramble to reconstruct the previous year’s finances. That’s where errors creep in. Running totals throughout the year let you know whether you’ve crossed the $400 threshold well before the filing deadline.
If you’re unsure whether you need to file, an accountant can help. The cost of an hour or two is worth the peace of mind, especially in your first year.
If you earned $400 or more in net self-employment profit during the year, filing taxes is not optional, no matter what else you earned or whether clients issued 1099 forms.
Related: The $400 Dollar Rule for Self-Employed People: Tax Basics, Do Freelancers Have to Pay Tax? What You Actually Owe
Ready to send stronger proposals?
Build, send, and track proposals in one place so follow-up is easier.
Start your free trial →
