Now let's consider the independent worker who made $100k last year, off the books as they say, with no reporting except for a single 1099-MISC alleging $7k in Box 7 "Nonemployee compensation." The rules say you're required to file as the $12,000 (Single) filing threshold does not apply to self employment income. You would not owe any income tax, because your income is below $12,000. But you'd be on the hook for social security and medicare ("FICA") tax due on your "self-employment" earnings. The self employed pay FICA as "Self Employment Tax" (SET). SET is calculated on schedule (form) SE and is filed as part of an income return.
However, this worker was paid in cash (lawful money) and checks which were all redeemed in lawful money.
Once again, worker will have more line items than will fit on the one Line 21 - Other income. We see it is normal practice to attach a statement:
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STATEMENT Supporting Details for Line 21 Other Income - Schedule 1
Form 1099-MISC $7000
Redeemed lawful money (check Exhibit A) -7000
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TOTAL Other income $0
This accounts for the 1099-MISC presumption of federal income. The filer has corrected, or rebutted, the presumption that the $7000 amount was federal income. The filer is therefore not an under reporter and will avoid getting caught up in the AUR machine. The resulting Form 1040 will show zero wages and zero taxable income.