Question

1099-NEC

Forum|Forum|5 years ago
March 10, 2021
3 replies
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I entered 1099_NEC income where suggested but when I indicate there may be expenses, tax due triples?

1099

TurboTax is calculating self-employment tax and income tax on the total amount of the 1099-NEC entered. The amount from your 1099-NEC is being taxed at your marginal income tax rate plus 15.3% for self employment taxes. As you enter expenses to offset that income, the amount of tax will go down. You will need to upgrade to Self-employed version of TurboTax to enter expenses to offset the 1099-NEC self-employment income. If the 1099-NEC is not self employment income, then it should be entered as Miscellaneous income.

Beginning with the 2020 tax year, the IRS will require business taxpayers to report nonemployee compensation on the new Form 1099-NEC instead of on Form 1099-MISC. Businesses will need to use this form if they made payments totaling $600 or more to a nonemployee, such as an independent contractor. This was done to help clarify the separate filing deadlines on Form 1099-MISC and the new 1099-NEC form will be used starting with the 2020 tax year.

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Mimi-Papa

I am a taxpayer and not an expert, but I had the exact same situation as you, so here's my take. I found that if I enter only the amount from box 1 on my 1099-NEC and do not enter any expenses, then TT does not create either a Schedule-C nor a Schedule-SE, and therefore does not calculate any self employment tax on the amount. In this case, TT puts the amount from my 1099-NEC under "other income". But as soon as I tell it I have expenses against it, TT suddenly creates a Sch-C and Sch-SE, which adds 15.3% self employment tax to my tax liability. In my case I would be far better off, tax wise, reporting this income as "other income", and NOT entering expenses. However, although TT lets me do this, I don't believe that would be correct, since from all the articles I've recently read on the matter, I believe this actually should be reported (unfortunately) as self employment income. If I'm wrong about that, someone please let me know. Thanks!

DMarkM1

You are correct. Income reported on a 1099-NEC is inherently self-employment income and subject to Self-employment taxes.

According to the IRS payments for services performed are NEC. Below is extracted from the 1099-NEC instructions.

What is NEC?

If the following four conditions are met, you must generally report a payment as NEC.

You made the payment to someone who is not your employee.
You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
You made the payment to an individual, partnership, estate, or, in some cases, a corporation.
You made payments to the payee of at least $600 during the year.

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vkTax

Guided by Turbotax my kids have been filing wrong taxes for the past 2 years. They have income from miscellaneous summer jobs and helping out family members. They get some of this income through 1099 NEC. But since they don't have any expenses related to these, TurboTax was not generating any Schedule C and they have not been paying self employment taxes.

I would think this would be a pretty common scenario for many kids. How does TurboTax miss such a case.