1099-nec

[elaine63]

Tell me if this is correct. I have a 1099-nec for a client that worked for Uber. I went to 1099-misc scrolled to box 3 "other income" put the $1400 then i scrolled down to "for other income" and checked the "other income" box then if you go to the "misc income form" it will show it under other income and on the 1040 on line 8 it shows it on "other income" is this correct?

[dkh]

Wouldn't this client be considered self-employed and required to file a Schedule C? 

[dd4vols]

NEC is short for Non-Employee Compensation.   NEC amounts are subject to self-employment taxes, not just income tax.  You should link these amounts to a Schedule C, and prepare it accordingly.

[BobKamman]

In which state does your client live?  I think California gig/taxi drivers may be treated differently from the rest of the country, because of state laws regarding worker classification enacted last year (and to some extent, rejected by voters).  

[qbteachmt]

"I have a 1099-nec for a client that worked for Uber. I went to 1099-misc scrolled to box 3"

But it's not a 1099-Misc. That is the info that used to be in box 7 on 1099-Misc. Now it's on the 1099-NEC. You went to the wrong form.

They might also get a 1099-K.

https://www.uber.com/us/en/drive/tax-information/tax-documents/

https://help.uber.com/driving-and-delivering/article/what-is-a-1099-nec?nodeId=c7ed2266-4cc3-442e-83...

https://www.uber.com/us/en/drive/tax-information/faq-and-resources/

https://www.irs.gov/taxtopics/tc510

There is some light reading that should be helpful.

Your client is supposed to track and report some business expense value from the use and operation of the vehicle, and what it takes to make that income. That's their business, as Schedule C.

[thegoodbrotherbrokers]

What about bonus that was given to employee and reported on 1099-Nec. Can you use box 3. I notice there is better benefit regarding tax treatment that using schedule C and creating something that does not belong to the employee as self contractor

[dd4vols]

Bonuses to EMPLOYEES should be in payroll.. and subject to payroll withholdings.  If you could compensate employees via 1099s, no one would have payroll...to avoid the employer match on taxes deducted,  Your problem starts at the employer level.....that's totally wrong.

[thegoodbrotherbrokers]

I know your explanation. I have no one but many clients that employer paid them bonus and comissions  and report them using a 1099-Nec. I know is not the correct form but still is happens and I would like to know if the case apply to an employee we can use other income. Proseries pro. Enable the "Other Income" check mark.for a reason under 1099-nec box 1and I am thinking that what I mention is the reason I just need to verify

[dd4vols]

here is what you are affirming to when you file a return as a preparer "Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge"

So, you are willing to affirm to something you know is wrong???  Enabling a check mark would seem to pale in comparison to committing perjury on a tax document.

[qbteachmt]

@thegoodbrotherbrokers 

"but many clients that employer paid them bonus and comissions and report them using a 1099-Nec"

My recommendation is that you stop using that terminology entirely, to show you know this isn't what is in the regulations.

Employer = payroll and W2. There is no such thing as "1099 employee." Stop using that phrasing to express a more professional perspective to your clients. Stop trying to find a workaround for the scenario.

What you are describing of "employer, but 1099-NEC" would be part of why the IRS examines for worker misclassification.

[BobKamman]

Perhaps the reason that you have not one but many clients who, like their employers, want to avoid payroll and Social Security taxes is that you have built a reputation as someone who will let them get away with what other preparers refuse to deal with.  There are two consequences of this:

1)  Bad clients drive away good clients.  It's better to develop a reputation as a preparer for taxpayers who want to be honest.  You can do only so many returns.  Why cater to those who don't follow rules?

2)  Eventually your reputation among clients will become your reputation at IRS.  Don't be surprised if they run a "preparer project" and audit every return you file.  

[thegoodbrotherbrokers]

I am agree with you. I think we both need further research about the issue. Creating an schedule c. Just because client has a 1099-Nec is also wrong. Maybe we need to tell the employee to get to the employer and tell them it is not the appropriate way to report bonus and so on. I will research more and get back to the forum. I will even probably call the IRS to find out 

[thegoodbrotherbrokers]

I am not doing a workaround. I am just looking for the best solutions for my clients. I asked the clients. Do you work as I dependent contractor. The reply was no. Why do you have a 1099-Nec?

Reply: that is my bonus. My employer gave this form for a bonus a got at the end of the year. 
Now. Tell me. Will you start preparing schedule C. I think that is also wrong.

I will reply to you when I find out more about this issue.but, one more time just because of the form you cannot create schedule C. 

[thegoodbrotherbrokers]

Let’s do more research to find out about this. Telling me what you think without deepest research is not right. Maybe the tax code will allow this and that is why employers are doing it.

I will post a reply after further research

[dd4vols]

you do that research..... and try to find out how to do something illegal in the tax code.....

[thegoodbrotherbrokers]

Ok. Here it is.
Read, review and search before posting wrong answers and statements

“Revenue Rulings ( 58-112, 55-431, and 55-258) indicate that income from occasional act of transaction, absent Proof of effort to continue those acts or transactions on a regular basis are not income from a trade or business.

Thanks 

Thanks

[thegoodbrotherbrokers]

Ok. Here it is.
Read, review and search before posting wrong answers and statements

“Revenue Rulings ( 58-112, 55-431, and 55-258) indicate that income from occasional act of transaction, absent Proof of effort to continue those acts or transactions on a regular basis are not income from a trade or business.

[dd4vols]

selling your  car to your neighbor is "an occasional act or transaction" ...getting a bonus from your EMPLOYER is not an occasional act or transaction, even if you get the bonus once a year..

You are looking for ways to justify doing an incorrect tax return.  We can't change your morals.   Go ahead and do what you want, despite advice from everyone on here.

Just curious, are you a CPA?

[thegoodbrotherbrokers]

Sorry. But this time you are totally wrong. 
you need to do more research before posting!

I finished my research and look to many examples and yes. If you get a bonus one time a year does not make you a self contractor. I am not going to argue with you. But if you are one of those preparer who see a 1099-Nec and just prepare an schedule C without further questioning. You are hurting your clients. And I think there is nothing else to discuss. I already got my answer.

examples of reporting 1099-Nec as other income as follow:

-A corporate officer received a fee for negotiating an isolate sale of all the company’s stock. He did not regularly hold himself available to the public for negotiations( revenue ruling 58-112)

-A man participated in a clinical drug study for which he was paid a lump sum. His intent was to receive treatment for asthma (private letter ruling 9106004)

An assistant Professor go author a book without any obligation to later work on revisions. The fact that she did revise the textbook five years later did not matter( Langford v.  Comissioner, Tc memo 1988-300

[BobKamman]

Examples of reporting 1099-NEC that do NOT qualify for avoiding FICA or SE taxes:

--bonus that was given to employee    [From your post]

[qbteachmt]

"Maybe we need to tell the employee to get to the employer and tell them it is not the appropriate way to report bonus and so on."

Yes, someone needs to get this action corrected. That doesn't mean the employer cares, though.

And no one here is going to debate this with you. This is not the place to argue something laid out by Congress and by IRS regulations and rulings.

1099-NEC, means "NonEmployee Compensation" which implies paid for services. It is from the Box 7 on the 1099-Misc in the past; it is a reactivation of a form not used since 1982.

So, either you have an employee paid by the employer and incorrectly reported; or, you have a person paid as if they are running their own business; or, you have a prize or award or gift from someone other than the employer, reported on a 1099-Misc as Box 3.

But keep in mind: employers report compensation on W2. Earning a commission, a bonus, a performance award, etc, from your employer is part of being employed and that means reported on W2.

[thegoodbrotherbrokers]

Really. You are a bad loser. So you are totally taking the word out. Bonus was an example that I used. But, instead of researching or agree you still trying to convince people here that I was wrong. When the actual discussion was relate to how to report 1099-Nec as other income because Proseries allow us to check Mark “other Income” .Not because, you get a 1099-Nec does not make you an independent contractor. Is ok. Conversation is over and already got the sender that I was looking out. 
thanks anyway

[qbteachmt]

You told us this was a Bonus; not that Bonus was an example.

"You are a bad loser."

This is not a game; this is your Profession. You need to get it right.

The rest of the people in this topic, which isn't even originally yours, already know what is wrong here.

You are signing your name to that return. It's been pointed out that you are the responsible party. While they might call it "a tax practice" you are not supposed to practice on the taxpayer. You are supposed to know.

[thegoodbrotherbrokers]

Due your due diligence that will be my advice. I know is not a game. Unfortunately, for you and other people that post wrong answers I came this time. I will advice you to research more before posting here as everyone should do. You cannot post a reply just because you think. But anyway I know that instead of seen a 1099 and creating an schedule c. I will need to research with the client how and why did they get paid like that. 
i am sure Proseries has the check Mark there because it depend of the case. And that is actually why I got concerned about it.

No. This is not my case but if I have the case now. I will either research or ask the client more because at the end we are here to help them out with their taxes and to complete as much as we can an accurate tax return. In the other hand , what you mention before “do your research and how to illegally betray the tax code does not apply” . I will always research before getting a resolution. In this case, I was not happy and feel something was wrong with the reply. Anyway. Thanks for your time but I don’t think personally that you were right and after posting the right reply you did not even acknowledge that I was right. 
for me is not a game either but really think telling the true and accept that I was wrong is not a bad thing. The whole discussion was about other income and how to report those specific cases. Please, thumbs up for me.!

[Paul-G-328]

What about this scenario that I have with a client. Husband and wife both get 1099-NECs every year working for an apt complex. I file a schedule C for both of them every year. At the end of last year the owner of the apt complex sold the complex and gave each of them a $30K bonus as a parting gift for their years of service and added it to their 1099s. Is there any exception for the Self Employment tax for the $60K bonuses?

[qbteachmt]

"Husband and wife both get 1099-NECs every year working for an apt complex. I file a schedule C for both of them every year. At the end of last year the owner of the apt complex sold the complex and gave each of them a $30K bonus as a parting gift for their years of service and added it to their 1099s. Is there any exception for the Self Employment tax for the $60K bonuses?"

No. They got paid by their customer. Just because they got paid More, doesn't bypass all the same taxes. It's still part of Gross Revenue for their business(es).

[Paul-G-328]

Thanks, that was what I kind of thought.

[BobKamman]

In 1969, future Vice President Nelson Rockefeller gave Henry Kissinger a "gift" of $50,000 in recognition of past services as a paid consultant.  Rockefeller paid gift tax.  Kissinger didn't pay income tax.  But the rich are different.

[thegoodbrotherbrokers]

Thanks

I called intuit specialist to ask about it. The reply was as simple as: “if it doesn’t apply to schedule C because if the client was a not a self employee. Just don’t make the schedule C and check on “other income”

[kgudgel]

I found the following on the IRS website:  https://www.irs.gov/government-entities/form-w-2-and-form-1099-misc-filed-for-the-same-year

If you look down at the last example:

Additional Compensation Payments Reported on Forms 1099-MISC

When a taxpayer files both Form W-2 and Form 1099-MISC for a worker for the same year, and the payment reported on Form 1099-MISC can clearly be identified as additional compensation (such as a taxable fringe benefit), the examination of whether the additional compensation is subject to employment tax is a wage issue. The consideration is whether the payment meets the definition of wages or is excludable under a specific Code section.

Example 4

During an examination of the taxpayer's 2019 employment tax returns, the examiner found the taxpayer filed both Form W-2 and Form 1099-MISC for several workers. The taxpayer explained that the amounts reported on the Forms 1099-MISC were year-end bonuses paid to employees. Since bonuses were paid to workers for services performed as employees, the bonus payments are considered additional wages subject to employment taxes. The examination would not be considered a worker classification issue.

I've highlighted the relevant part.

According to this IRS website, a bonus paid to an employee is subject to employment taxes.  So, either the employer needs to include it as wages, include it on the W2, and pay the employer portion of the employment taxes OR the taxpayer reports it and pays the employment taxes. 

The third alternative is to file an SS-8 with the employee's tax return (and they pay their portion of the employment taxes).  Since there are always two sides, the IRS will then notify the employer of the potential misclassification.  There are some significant penalties for worker mis-classification so this route often ends up with bad relationships between employee and the employer and often results in termination of the employee before it is resolved.  While this is probably the "right" way to do it (if the employer refuses to change their W2), I typically explain to my clients the potential repercussions.

But it is clear that employment taxes must be paid on bonus income.  So, going the route of "other income" is not correct.  If the employee/taxpayer chooses not to request a corrected W2, then I will only prepare their tax return with a Schedule C and self-employment income.

[netwrk77]

Employee received a bonus and was issued a 1099-NEC.  Was not self employed  also was issues a W-2 but bonus on 1099-NEC

[Skylane]

@netwrk77  this is a long and very old thread but if you read the post directly above yours from @kgudgel you’ll find the answer. The employer is wrong. Doesn't mean the TP should also file wrong ....  Link the 1099-nec to sch c with no expenses.

[thegoodbrotherbrokers]

The answer is on the 1099-NEC form from irs. Please, visit irs.gov official website and search for a 1099-nec. On the list you will see a pdf file. Read the instructions as they are clearly explained there.

[kgudgel]

I stand (partially) corrected.  When I first started doing taxes, the Form 8919 did not option H

"I received a Form W-2 and a Form 1099-MISC and/or 1099-NEC from this firm for 20XX.  The amount on Form 1099-MISC and/or 1099-NEC should have been included as wages on Form W-2. (Don't file Form SS-8 if you select reason code H.)

But does anyone know what will happen to the employer if 8919 is filed with code H?  Is it the same as when the SS-8 is filed (that the IRS is going to go after the firm anyways). 

If so, then I would still explain to your client what you are doing and the repercussion (that they may lose their job because they reported it correctly).  So, I would still have that discussion with the clients whether to ask for a corrected W2, or report on 8919.

But as the instructions you found pointed out, you cannot report it as "other income".  At least half of the self-employment taxes must be paid when the tax return is filed.

[BobKamman]

@kgudgel "But does anyone know what will happen to the employer if 8919 is filed with code H?  Is it the same as when the SS-8 is filed (that the IRS is going to go after the firm anyways). "

Since the 8919 doesn't require the employer's address (and allows "unknown" for EIN), probably not much, in most cases.  Like all audit programs, IRS may pull a sample of higher-amount 8919s to track down companies that may be evading payroll taxes.  That would require Congress to appropriate money, and many in the legislative branch don't think it would be productive.  Also, if employers have to pay taxes it means less money for political contributions. 

[kgudgel]

While the 8919 doesn't have the address, you can only use the code H (it looks like) if you received a W2 AND a 1099-MISC/1099-NEC.  So, that means that the address is going to be on one of those.

So, I was wondering if the Code H somehow went through an automated under-reporting type system.  Would be fairly easy for the IRS to pull those (if they had the resources to do the programming).

[BobKamman]

These days, I doubt many employees would disagree with a 1099-NEC from their employer, which would allow them to deduct related expenses.  If they have no expenses, though, half the Social Security taxes are better than the whole amount (as long as they're not worried about losing their job over the disagreement).,