Prop Firm Taxes (2026): 1099-NEC, Schedule C, 60/40

The short version

Payouts are contractor income. Topstep's help center says every funded trader is an independent contractor, and US traders get a 1099-NEC. MFFU, Apex and Lucid also say they send or may send 1099s.
You report payouts as business income on Schedule C. The IRS charges 15.3% self-employment tax once net self-employment earnings reach $400.
The 60/40 rule (Section 1256) covers futures gains reported on Form 6781. Take Profit Trader's own guide says prop payouts typically don't qualify.
For payments made in 2026, a firm only has to file a 1099-NEC once it pays you $2,000 in the year (it was $600). Smaller payouts still count as income.
If you expect to owe $1,000 or more, the IRS expects quarterly estimated payments on Form 1040-ES.

Not tax advice. This page sums up what the IRS and the firms publish. Your situation can differ, so check your own return with a tax professional.

Why payouts count as contractor income

Topstep puts it in one line at the top of its tax article: "You're an independent contractor. Not an employee." It tells traders to report payouts as regular income, and only the amount actually paid out. If your funded account shows $5,000 of profit and you request a $1,000 payout, you report $1,000.

You trade a simulated account, so the firm isn't selling you futures gains. It pays you a share of your simulated profit. Take Profit Trader's guide calls this "non-employee compensation (ordinary income) for the 'service' of trading." That's why it arrives on a 1099-NEC, the IRS form for paying a non-employee for services.

Take Profit Trader also says the tax treatment is generally the same whether the profit came from its simulated PRO accounts or its live-market PRO+ accounts. What decides it is the kind of payout, not where the trades ran.

Which tax forms you'll fill in and get

When	Form	Who
Before your first payout	W-9	US citizens, and resident aliens with an ITIN
Before your first payout	W-8BEN	Non-US citizens living outside the US
Early in the next year	1099-NEC	US traders paid over the reporting threshold

W-9 and W-8BEN rows are from Topstep's help center. Apex's user agreement says it may ask for a W-9, W-8BEN or similar and may issue 1099s as the law requires.

When forms arrive. Topstep emailed its 2025 1099s on January 31, 2026, to US citizens paid over $600 in 2025. MyFundedFutures said traders paid by Plaid or ACH bank transfer would get their 1099s by mail by February 17, 2026. Lucid's FAQ says tax forms such as a 1099 may be issued to US traders where applicable.

The threshold changed for 2026. The IRS says the reporting threshold was $600 for payments made before 2026 and is $2,000 for payments made in 2026. So if a firm pays you less than $2,000 in 2026, you may not get a 1099-NEC at all. That doesn't make the money tax-free. The IRS says plainly: "You must report all income you receive on your tax return."

Outside the US. Topstep sends no tax form to non-US citizens and says to report payouts under your own country's tax laws.

Why your 1099-NEC can show more than you got

Firms report the gross payout, before any transfer fee. Topstep's own example: you request a $500 payout by ACH or wire, a $30 processing fee applies, and $470 reaches your bank. Your 1099-NEC still shows $500, and Topstep says it won't issue a corrected form.

Topstep's fix for self-employed traders: report the full $500 from the 1099-NEC, then deduct the $30 fee as a business expense on Schedule C, so you're taxed on $470. Topstep notes that Wise payouts carry no processing fee, so the gross and net amounts match.

Schedule C and self-employment tax

Schedule C is the IRS form for income or loss from a business you run as a sole proprietor. Contractor payouts usually go here, along with the costs of earning them.

Self-employment tax is Social Security and Medicare for people who work for themselves. The IRS rate is 15.3%, and you owe it when your net earnings from self-employment are $400 or more. It's figured on Schedule SE. The IRS Schedule C instructions note you can deduct half of your self-employment tax on Schedule 1.

Costs. Take Profit Trader's guide says Schedule C lets you deduct business expenses, and it lists evaluation fees, platform subscriptions, data feeds and part of a home office as examples. The IRS keeps its business expense rules in its guide to business expense resources ↗. Whether a given cost counts for you is a question for your tax professional, so keep the receipts either way.

Trading through an LLC. Topstep requires funded accounts in your own legal name. It does let a US single-member LLC receive payouts and file taxes: your personal details go on the funded account agreement, and the LLC's details go on the bank and tax forms. C-corps, S-corps and multi-member LLCs are not allowed. Other firms set their own rules, so check before you set one up.

The 60/40 rule: when it applies and when it doesn't

Regulated futures contracts are Section 1256 contracts. Per IRS Form 6781, they're marked to market at the end of the tax year, and the gain or loss is treated as 60% long-term and 40% short-term, no matter how long you held the position. That blend is what traders mean by "60/40", and it's reported on Form 6781.

A prop payout is a different thing. You don't own the futures positions in a funded account; the firm pays you a profit split. Take Profit Trader's guide says: "Because you are being paid a profit split as a contractor, these payouts typically do not qualify for the 60/40 tax split. Instead, the entire payout is often taxed as ordinary income at your marginal tax rate."

If you also trade futures in your own brokerage account, those trades are separate from your prop payouts, and that's where Form 6781 and the 60/40 split come in. Keep the two apart in your records.

Quarterly estimated tax

You're paid as a contractor, not an employee, so plan for the tax yourself. The IRS says you generally must make estimated tax payments if you expect to owe at least $1,000 for the year after subtracting withholding and refundable credits. Self-employed people are generally expected to pay estimated tax quarterly, using Form 1040-ES. The form has a worksheet and the four due dates.

A big payout in one quarter can push you over that line on its own, so it helps to set money aside each time a payout lands.

A year-end checklist

Download every payout record from each firm's dashboard or payout processor, with dates and gross amounts.
Match them against each 1099-NEC you get. Remember the form shows gross amounts, before transfer fees.
List any payouts that came with no form (under the threshold). They're still income.
Collect receipts for evaluation fees, resets, activation fees, data and platform costs to take to your tax professional.
Keep any personal brokerage futures trading (Form 6781) separate from prop payouts.
Outside the US? Follow your own country's rules; US firms don't advise on foreign tax.

Questions

Do prop firms send a 1099?

For US traders, usually a 1099-NEC once payouts pass the IRS reporting threshold: $600 for payments made before 2026, $2,000 for payments made in 2026. Topstep, MyFundedFutures, Apex and Lucid all say on their own pages that they send or may send 1099s.

Do prop firm payouts get the 60/40 tax treatment?

Usually not. The 60/40 split is for Section 1256 contracts such as regulated futures, reported on Form 6781. Take Profit Trader's guide says payouts paid to you as a contractor profit split typically don't qualify and are often taxed as ordinary income.

Do I pay self-employment tax on prop firm payouts?

If the payouts are self-employment income and your net earnings from self-employment are $400 or more, the IRS says you owe self-employment tax, currently 15.3%. You figure it on Schedule SE.

Can I deduct evaluation fees?

Take Profit Trader's guide lists evaluation fees, platform subscriptions and data feeds as business expenses you may deduct on Schedule C. Whether yours qualify depends on your situation, so ask a tax professional and keep the receipts.

I didn't get a 1099. Do I still report my payouts?

Yes. The IRS says you must report all income you receive on your tax return. From 2026 a firm only has to file a 1099-NEC once it pays you $2,000 in a year, so smaller totals may come with no form.

Why is my 1099-NEC higher than what hit my bank?

Firms report the gross payout before transfer fees. Topstep's example: a $500 payout with a $30 fee shows $500 on the form. Topstep says to report $500 and deduct the $30 fee on Schedule C.

I'm not in the US. What do I do?

Topstep sends no tax form to non-US citizens, asks for a W-8BEN, and says to report payouts under your own country's tax laws. Check with a tax professional where you live.

Sources

Read on Nov 4, 2026:

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