If you’re a gig worker or freelancer, you’re going to get to know the 1099 form well. In 2021, the 1099 form name changed, so we’ve put together what you need to know about the change.
Previously, companies used form 1099-MISC to report what the IRS called “Miscellaneous Income and Nonemployee Compensation.” That’s bureaucratic speak for the money somebody pays you for your side hustle or freelance work. In 2021, you received form 1099-NEC (Nonemployee Compensation) to report 2020 earnings. The info will be the same but the form will look a little different.
If you’re an employee, you won’t get a 1099 from your employer. Only an independent contractor will get the 1099 form if they’ve earned enough to warrant it.
Independent Contractor vs. Employee
While there’s been a lot of debate lately about the difference between an independent contractor and employees, a lot of it comes down to control. If you determine how you do your work, where you do your work, and provide the tools to do the work, there’s a good chance you’re an independent contractor. A good rule of thumb is the ABC test as recently established by California. As an independent contractor, you:
1. Are free from the control of the company you’re providing work for
2. Performing work that’s outside the normal course of their business
3. Engaged in an independently-establish trade, occupation, or business that renders the service.
As an independent contractor, you’re working for yourself. You have more flexibility, such as making your own hours as long as you get the work done. You can say no to work you don’t want to do. What you won’t get is benefits from an employer, such as health insurance or a 401(k). You’re on your own for that.
If you’re punching a time clock or doing the 9-to-5 at a workplace, you’re probably an employee. If that’s the case, you’ll get a W-2 from your employer when it’s tax time.
The 1099 Threshold: $600 Earned
Did you earn $600 or more from any one place? If so, they’re required to send you a 1099 form.
When it’s time to prepare your taxes, you’ll need to gather up all of your income, including your 1099 forms. If you were paid less than $600 for your services, you won’t get a 1099, but you’ll still be responsible for reporting any amount you received. So, make sure you keep good records throughout the year.
When You Should Receive a 1099
The IRS requires companies to get 1099 forms in your hands by the end of January. If the day falls on a weekend – as it does in 2021 – businesses get until the next business day. So, for 2021, the deadline to receive your 1099 was February 1st. If you haven’t received your 1099, contact the company that contracted for your services. Be sure to check if you earned over the $600 threshold (if you didn’t, you shouldn’t be expecting the form).
Preparing for Tax Time
What’s old is new again. The 1099-NEC form has been around for decades but hasn’t been used since 1982. Now that the 1099-MISC form has changed, the 1099-NEC will be the key to filing your 2020 taxes this year.
About the Author: Paul Dughi has an MBA in Business Administration and has held executive management positions in the media industry for the past 30 years. He is an Emmy® Award winning Producer/Writer and has authored two books on Marketing, Management, and Sales. You can find him on WriterAccess.