Question

Patent Award Bonus from Employer on 1099-MISC

Forum|Forum|5 years ago
February 28, 2021
1 reply
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Good afternoon all,

I received an incentive payment from my employer for filing a few patents. My employer sent me a 1099-MISC for this one time payment. When I try to enter this info in on TurboTax, it believes this income is part of a self-employed business stream of income and starts asking for questions on business codes, etc... none of which really apply. When going down this path, my sizeable refund turns into a sizeable tax liability. Because of this, I tried using H&R block to see if it comes to the same conclusion, which it did not. HRB asks for significantly less info, however, which also doesn't make me feel good (it asks for who the payer was (my employer) and the amount only). HRB concludes that I have a MUCH smaller tax liability. ~90% less! I played around with TT and got it to reach the same conclusion by saying that the money was prize money instead of part of a self-owned/self-employed business; this feels more correct to me and I was feeling happy about it, until when I was about to file, I reviewed my 1040 and it called out this income specifically as gambling winnings. So now im confused on what the right path is. Any help would be much appreciated.

FYI - I tried to do some due diligence and found a similar post that I tried to follow, but it seems the TT software has changed since this was posted, as the instructions no longer are valid, specifically the part about "this is income that my employer reported on a 1099-MISC instead of a W2".

https://ttlc.intuit.com/community/taxes/discussion/i-got-a-1099-misc-from-my-employer-as-an-incentive-payment-for-a-patent-award-when-i-try-to-claim-it/01/355760#M148252

TurboTax Deluxe Online

LenaH

If bonuses are reported on a 1099-MISC in Box 3, then you will still need to pay the uncollected Social Security and Medicare tax, as well as the income tax. This could be why it is populating under your Schedule C and adding self-employment tax (which will end up being your portion of the Social Security and Medicare on this income).

The IRS classifies bonuses as supplemental wages, along with severance pay, taxable fringe benefits, vacation pay, back pay, and overtime. Supplemental pay is anything other than your regular pay.

Typically, bonuses are added to a W-2. However, there are different withholding methods for supplemental wages that the employer can consider, which are discussed in IRS Publication 15.

Per the IRS, regardless of the method employers use to withhold income tax on supplemental wages, supplemental wages are subject to Social Security and Medicare taxes.

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