Saturday, September 2, 2023 – Listen up, my independent contractor friends. I’m here to give you a wake-up call. Gone are the days of blending into the crowd with your 1099-MISC forms. The IRS, ever the keen observer, switched up the game in 2020. They’ve introduced a new form called the 1099-NEC—NEC standing for “Non-Employee Compensation.” Why? To make it a cinch for Uncle Sam to find out if you’re paying your self-employment tax.
If you’re not hip to the jargon, a 1099-NEC is basically a neon sign flashing “SELF-EMPLOYMENT TAX” over your head. Unlike the good ol’ days of 1099-MISC where you might’ve flown under the radar, the 1099-NEC is going to match you up neatly with IRS databases. Get it wrong, and you’ll receive a charming little note called a CP2000, giving you a rundown of what you owe—typically, it’s “pay more tax.”
What’s the tax, you ask? A hefty 15.3%. And let’s break it down for the mathematically challenged—12.4% is for social security, and 2.9% is for Medicare. This isn’t pocket change, folks.
Now, why am I hammering this home? Because if you’re an independent contractor, you ARE a business. Period. Start thinking about tax planning and the structure of your business like your livelihood depends on it. Why? Because it does.
Steven A. Leahy is a tax attorney in Illinois. He was the host of the long-running popular Radio Show “The IRS Radio Hour” heard every Sunday evening on AM 560 The Answer. Attorney Leahy is also the author of the book “Deal With Your IRS Problems Today!” You can get a FREE copy of this important book at FreeIRSBook.com. Or Call 24/7 (312)664-6649