1099-nec from employer for consulting

[SarahMac7]

My husband previously consulted for his current employer prior to taking a position at the business a couple of years ago. He received a 1099-NEC from his employer for providing consulting work in 2023, which was outside the scope of his current job and his employer paid him for those services. So this should be entered as self-employment income then, yes?

[LoraineG]

That all will depend in a couple factors.  Even if they pay him with a 1099, he might have been still considered an employee for worker's classification purposes.  There are several tests that IRS look at in order to determine the relationship between a worker and an employer. 

One of the biggest red flags for the IRS is that the person receives a W-2 and a 1099 for the same year.  But, again, it will all depend on a variety of factors like financial control, behavior, and the type of relationship.  

I would go and review these factors here:  https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-o...

If this doesn't clarify your situation, then you may want to fill out a form SS-8 where the IRS is who determines his status as a worker. 

[LoraineG]

Also to add to this, the importance of the correct classification is that it will determine if 1) you are subject to self-employment taxes and 2) if you even can claim any expenses against that income.  

Because as an employee, you can't claim unreimbursed job expenses, but as a self-employed individual, you can.  

[SarahMac7]

Thank you, Loraine. I appreciate your responses and have read through the classifications.

Can one be an employee of a business and also provide a different service as self-employed, for which they are paid separately? The service provided for the 1099 was different from the job of employee.

[LoraineG]

It will all go from the point of those rules I told you about.  Was the service provided by your husband an essential service for that business (for example)?  

In general, I can't be a painter for a painting business and be a subcontractor (or consultant).  That is an essential service for that business.  However, if an accounting firm hires me to paint the office, then I'm a subcontractor most likely (still has to pass all the tests).  

Unfortunately this one can go either way.  I would take a look at the rules and try to identify how those services where provided.  I am also adding these rules from the Dept of Labor:  https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship