Amazon Vine 1099-NEC and IRA contribution

Forum|Forum|2 years ago
December 1, 2023
5 replies
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I started participating in the Amazon Vine product evaluation program this year. Next year I will receive a 1099-NEC for the estimated tax value of the products reviewed. I expect it to be around $2,000. I am retired with no other earn income, just pension and social security, and I am not old enough to start taking Required Minimum Distributions from my IRA.

When I do my taxes next year, could I contribute an amount equivalent to the 1099-NEC to my existing Traditional IRA to offset the increase in income taxes caused by the 1099-NEC?

Best answer by dmertz

To be clear, the amount available to contribute to an IRA or other retirement plan is net profit minus the deductible portion of self-employment tax, so you won't be able to contribute the entire Form 1099-NEC amount to a retirement account.

Bsch4477

Employee

Yes, you can do that but recognize that you still have to pay 15.3% self employment tax on that income.

Rconrad2kAuthor

Yes, that's a real downside to Amazon's program, but having the traditional IRA contribution tax deduction will help lessen the pain!

dmertzAnswer

Employee

Opus 17

Employee

You need to report your gross income as well as any legitimate expenses. Then, your net profit is subject to 15.3% self-employment tax.

You also have to subtract the deductible portion of your self-employment income (half the self-employment tax or 7.65%) from your self-employment income, to determine your eligible contribution. So your compensation for purposes of contributing to an IRA will max out at 92.35% of your net profit from self-employment.

https://www.irs.gov/retirement-plans/self-employed-individuals-calculating-your-own-retirement-plan-contribution-and-deduction

Rconrad2kAuthor

Complicated. If I have no legitimate expenses related to the Vine program, so the entire estimated tax value would be considered profit, so, if I understand correctly I could make a traditional IRA contribution of 92.35% (that's a weird number!). My take away is that the Vine program is more hassle than it's worth!

Opus 17

Employee

@Rconrad2k wrote:

Complicated. If I have no legitimate expenses related to the Vine program, so the entire estimated tax value would be considered profit, so, if I understand correctly I could make a traditional IRA contribution of 92.35% (that's a weird number!). My take away is that the Vine program is more hassle than it's worth!

About 92% of your net self-employment is considered "compensation" for IRA purposes. And you will need to pay 15% self-employment tax, although if you contribute your entire work earnings into the IRA, you can pay the SE tax from an RMD, or savings or other funds.

Whether this particular way of earning extra money is "worth it" is, of course, a very personal decision and depends on what you do, how much you enjoy it, how much time it takes, and so on.

Pixie2400

I just found this and wondered why no one is talking about it. From IRS. Gov:

IR-2023-221, Nov. 21, 2023

WASHINGTON — Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the Internal Revenue Service today released Notice 2023-74PDF announcing a delay of the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023.

As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year. This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn't expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.

dmertz

Employee

A delay in the requirement for third-party settlement organizations to issue Forms 1099-K has no effect on the individual's responsibility to report income, it only affects the manner in which the individual reports certain income.

PiKaPiKa

I have been participating in the Vine program for almost 3 years now and have been filing on Turbotax.

First of all, do not file the 1099-NEC from Amazon Vine as the normal Self-employment income.

If you file with Turbotax, go down to "Less Common Income Home sale, canceled debt (1099-C, 1099-A), 1099-SA, gambling, etc." then, "Miscellaneous Income, 1099-A, 1099-C" then, Hobby.
Since Amazon Vine is considered as a Hobby.

The Amazon Vine program is not income from Self-employment.

Put in the amount in Box 1(Nonemployee compensation) on the first line income.

And for total expense, 0.00.

Write Amazon Vine Review Program and describe what it is. (Receive free items in exchange for a review etc.)

The tax you have to pay would be $0.00 if your Box 1 is less than $13,000.

I have been filing like that. No issues or questions from the IRS.

dmertz

Employee

Income form the Amazon Vine program can be income from self-employment or not depending on the individual's particular circumstances, but would be income from self-employment if it is done with the intent to earn compensation in the form of cash or products.

"The tax you have to pay would be $0.00 if your Box 1 is less than $13,000."

The income is includible in your AGI. Whether or not this income increases your tax liability depends on the rest of your tax return.