If you were hired as a freelancer or independent contractor and your total earnings were more than $600, you will need to file taxes using the renewed 1099-NEC form for the tax year 2020.
What is an Independent Contractor?
An independent contractor is a person or business that provides goods or services under contract or verbal agreement. Though this agreement means the independent contractor works for another company, the independent contractor is not considered an employee of that company.
Being an independent contractor gives you the freedom to set your own schedule or to supplement your day job income, but that means you are the only one responsible for tracking and reporting those freelance earnings on your taxes.
Here are some tips to help you when filing as an independent contractor.
1099-MISC vs 1099-NEC
1099 forms are the most common forms used by businesses that hire independent contractors. In the past, Box 7 on the 1099-MISC is where businesses reported their payments to contractors, but starting in the tax year 2020, the IRS has renewed the 1099-NEC (non-employee compensation) form and that is going to take the place of the 1099-MISC for freelance wage reporting.
Self-Employment Taxes
Self-employment taxes are taxes consisting of Social Security and Medicare taxes for individuals who work for themselves – since you don’t have an “employer”, you have to account for these taxes yourself if you are an independent contractor. You determine your self-employment tax using Schedule SE on the Form 1040 or 1040-SR. The self-employment tax rate is 15.4% and consists of two parts: 12.4% for social security and 2.9% for Medicare.
For 2020, according to the IRS, the first $137,700 “of your combined wages, tips, and net earnings are subject to any combination of the Social Security part of self-employment tax, Social Security Tax, or railroad retirement (tier 1) tax.”
Self-employment taxes tend to be higher than traditional employee taxes simply because there is no separate employer for you (the employee) to split these taxes with.
2020 Tax Year Filing Deadlines
The filing deadline for paper or electronic 1099-NEC forms is January 31.
For Form 1040-ES (estimated tax), the deadline for filing is April 15. If you are able to pay estimated taxes and self-employment taxes on a quarterly basis, the deadlines are:
- July 15, 2020 (was April 15) for 1st Quarter 2020 Estimated Tax Payment
- July 15, 2020 (was June 15) for 2nd Quarter 2020 Estimated Tax Payment
- September 15, 2020 for 3rd Quarter 2020 Estimated Tax Payment
- January 15, 2021 for 4th Quarter 2020 Estimated Tax Payment
For hassle-free 1099 filing, sign up for a free eFile360 account.