The Financial Planning Checklist for 1099 Employees

Written by Colby Gilmore, Private Wealth Advisor in Blue Trust’s Nashville, Tennessee office

There are significant differences when you are a 1099 employee versus a W-2 employee. How do you know if you are a 1099 employee? Are you self-employed, an independent contractor, and/or did you need to complete a W-9 for the company paying you? Below is a general checklist to help you take advantage of unique planning opportunities for your employment situation and to plan for potential risks.

“Working with two non-salaried streams of income – a realtor and actress combo – we needed guidance on how best to plan for our future. We began seeking referrals for a certified financial planner, and thank God we were led to Blue Trust! Despite having zero basic knowledge of financial management, our advisor made all terms and processes simple and easy to understand. They helped us set up life insurance policies, SEP IRA accounts, and perhaps most importantly, taught us how to create a charitable donation fund so that we can give cheerfully and with freedom.”

Clayton & Allegra Snyder, North Hollywood, CA* 

Step 1: Do I have appropriate cash reserves (3-6-12 months of living expenses)?

As a 1099 employee, your pay is often unpredictable or at least not consistent like a W-2 salaried or hourly employee. You might get paid at the end of a contract or by commissions after a sale. With the uncertainty of future income, do you have enough cash to provide for your basic living expenses until the next paycheck? The general rule of thumb is you may need up to 12 months of living expenses in cash. Do you know how much you need to earn to meet your living expenses, minimum debt payments, giving goals, and taxes? The diagram below provides an overview of how you should view your plan and the five categories of how we look at money. The formula below provides a quick calculation of how much income you would need to support your current expenses and payments.

Step 2: Am I appropriately setting aside income to cover my taxes (i.e., quarterly estimated tax payments)?

Unlike your W-2 friends, you don’t have a payroll provider withholding taxes from your paychecks. However, the IRS still wants their money as you make income. You need to be making estimated payments to federal and potentially state tax authorities to cover your taxable income. The general rule of thumb to avoid penalties is to make tax payments to cover 90% of your current-year taxes or 100% of your prior-year taxes (110% if your prior-year AGI was over $150,000 married filing jointly or $75,000 single filer). Quarterly tax payment deadlines are April 15 (payment period January 1 – March 31), June 15 (payment period April 1 – May 31), September 15 (payment period June 1 – August 31), and January 15 (payment period September 1 – December 31).

There are many helpful tools to estimate your tax payments if this is your first year as a 1099 employee or if your income is significantly different from prior years (including QuickBooks, other similar applications, or the IRS website Another planning option is to determine your Effective Tax Rate (ETR), which is the percentage of total taxes to income. Find your last year’s 1040 tax return (and state return), take the total Federal income tax amount + State income taxes, and divide by your gross income. Since you are a 1099 employee, you can skip adding social security and Medicare taxes, as those are added to your total Federal tax as Self Employment taxes.

*Multiply your current-year earnings by the ETR% to determine what you need to set aside for taxes.

Step 3: Am I appropriately managing financial risks (disability & life insurance)?

Unlike many of your W-2 friends, you are not provided with group disability or life insurance. If something happened to you, would your family be able to pay the bills without your income? Work with a trusted insurance agent to determine the right policies and coverages. A general rule of thumb is to have enough life insurance to cover 10 to 15 years of your income, plus outstanding debts (mortgage, loans, etc.) and other financial goals (i.e., education costs).

Step 4: Am I taking advantage of retirement savings options?

As a 1099 employee, you don’t have access to an employer-provided retirement plan (401ks, etc.), but you do have other options. You are your own employer, so you can establish a SEP IRA, Solo 401(k), Simple IRA, Traditional IRA, or Roth IRA.

  • SEP IRA: Allows you to contribute 25% of your adjusted net profit into a tax-deferred retirement account. Each dollar contributed is an immediate tax deduction.
  • Solo 401(k): Allows you to contribute up to the typical 401(k) contribution limit (2021 = $19,500) and make a match of 25% of your net profits. There are also Roth contribution options.

Step 5: Is my “business” structured properly (LLC, S-Corporation, Sole Proprietorship)

You are considered an independent contractor or also known as self-employed, so in theory, you run your own business. Running your own business comes with risks, like liability risk. Forming an LLC or S-Corp can help you limit those risks.

These are just some of the issues to think about as a self-employed person. If you would like to talk to a Blue Trust advisor about navigating these issues and more, please contact us at 800.987.2987 or email


This information should not be used as the primary basis of tax decisions. Because of individual client requirements, it should not be construed as advice designed to meet the particular tax needs of any investor. Contact your financial professional and tax advisor before implementing any strategies outlined in this material. Blue Trust and its employees and affiliates do not provide legal or accounting advice or service. Please consult with a professional advisor familiar with your particular situation for advice concerning specific accounting, tax, legal, or other matters before taking any action.


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