The bottom line is that the employer has incorrectly issued a 1099-NEC - but probably did it purposely in order to avoid paying the employer's share of social security and medicare taxes. So, I see one of two options:
1. File an extension, and go back to the employer to see if they will correct it (this is unlikely, but you can give it a shot). At a minimum, you will be responsible for the additional income tax and your husband's portion of social security and medicare tax if you get them to change it so that a corrected W-2 is issue.
2. Treat it as Schedule C income. It is clearly earned income on which income taxes, social security and medicare taxes are due. If you treat it as other income, rather than Schedule C income, so that medicare and social security taxes are not paid, expect a letter from the IRS in a year or two explaining why medicare and social security taxes haven't been paid on this.
