1099-NEC not valid for NY e-file

[ejdtaxman]

I have a client with a 1099-NEC. When I go to the NY return it tells me not valid for NY e-filing because NY does not accept the form for the 2020 tax year. 

I have other clients with one or more 1099-NEC, who are e-filing NY, for which the error does not appear. It only appears for this particular client. I am befuddled. 

I should add that this client has the 1099 marked as other income, he does not use a schedule C. And the 1099 has NY withholding.

I noticed when I removed the withholding, the error disappeared. It is not logical that NY would care about this, but it is also not logical that would not accept an e-filed return for using one of the most commonly issued forms, when they require practitioners to e-file all returns. 

I can't find anything online about this, but is there a way to re-characterize the 1099  as MISC instead of NEC and still give him credit for the withholding? 

[Just-Lisa-Now-]

why did they get a 1099NEC if theyre not self employed with a Sch C?

[Accountant-Man · Accepted solution]

You don't have to input the NEC, just find a way to enter the income and withholding elsewhere.

Then you also have to answer Lisa's question.

[ejdtaxman]

Not sure, but I have clients who are not self employed that have gotten these before. Was never an issue before because the 1099NEC didnt exist. I assume its just a processing error. 

I decided to just re-enter it as a 1099 MISC with withholding and it's fine. 

[Just-Lisa-Now-]

If they were paid for providing a service to someone (they did work) then IRS considers them self employed and will be expecting a Sch C to appear in the return and self employment taxes to be paid....so you may want to be sure youve got your ducks in a row and can explain how/why this income isnt self employment income when IRS sends the letter in the next year or two.

[ejdtaxman]

thanks for the heads up, I appreciate it. 

[qbteachmt]

"I decided to just re-enter it as a 1099 MISC with withholding and it's fine."

How can you do this, when there no longer is a Box 7 on that form? That means you arbitrarily changed the nature of the reporting, when you are not the originator of that informational return. As a professional, that's a bit risky for you.

[ejdtaxman]

It is not arbitrary. 

Were I able to enter it as a 1099MISC as in previous years I would have marked it as other income. 

The idiots mailed him a 1099NEC which I believe is just a mistake.

From what he's told me it's just residual income, not income he worked for. He's a wage employee with no schedule C. The 1099 is $147 and creating a schedule C for this income would be preposterous, at least in my opinion. Furthermore, if I did so, I would have to come with expenses that do not exist, which would actually be arbitrary. 

He's not the only one of my clients who receives one of these for income that was not actually self-employment income. Were the income more substantial I would ask him to get a corrected 1099, as it's only $147 I am not going to bother. 

[qbteachmt]

"It is not arbitrary."

Changing which information reporting form gets used is either an accident or intentional and arbitrary for you, because you are supposed to enter what was reported to your taxpayer. Or, get a Corrected form.

"Were I able to enter it as a 1099MISC as in previous years I would have marked it as other income."

You also don't get to pick which Box makes it favorable to the taxpayer.

"The idiots mailed him a 1099NEC which I believe is just a mistake."

Okay...

But what about this part you stated: "but I have clients who are not self employed that have gotten these before. Was never an issue before because the 1099NEC didnt exist. I assume its just a processing error."

Why would you assume this? Why not assume your Taxpayer is wrong, or their Employer is wrong, or you misunderstand the nature of the activity?

"From what he's told me it's just residual income, not income he worked for."

Where do you find the IRS describes "residual income?" What does that mean? Royalty?

"He's not the only one of my clients who receives one of these for income that was not actually self-employment income."

Then what is it?

Because employers should report all payments to employees on W2, if it is taxable. Also, if they didn't "work for it" then it's what else (something you find in the tax code): reimbursement (under an accountable plan)? Allowance?

"He's a wage employee with no schedule C. The 1099 is $147 and creating a schedule C for this income would be preposterous, at least in my opinion. Furthermore, if I did so, I would have to come with expenses that do not exist, which would actually be arbitrary."

Instead of making assumptions and also entering the data not how it was reported to the taxpayer, the information needs to be better identified. Maybe all three of you have this wrong: You, the employer and that taxpayer. Someone is supposed to know exactly what this is and how it is reported and taxed.