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1099 NEC

Level 1

I have a client that received a 1099 NEC for a payment amount related to her divorce.  There were federal and tax amounts showing on the form.  Should those amounts have been included in box 1, non employee compensation?  Example 1099 NEC - box 1 showed $165,000 box 4 showed $50,000 and box 5 showed $11,000; when I entered into the software, I entered it as above.  Should I have instead entered $226,000 in box 1 to capture the tax amounts as well?  She received a letter from the IRS stating  income of $61,000 (taxes) was not included.  I would have thought that the taxes would have been included in box 1.  I have not prepared the 1099s so am not sure of that and this is actually the first time I have seen tax amounts on the 1099 NEC.  Any help would be appreciated.  Thanks.  

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4 Comments 4
Level 1

Specifically it was a deferred comp plan her ex-husband had that paid out when he was 60.

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Level 15

If Box 1 showed $165,000, that should hypothetically be the correct amount.  You DON'T add the taxes to that amount.

Is $165,000 showing up on the tax return?  Or does the tax return show something else?

Did you ask your client how much she actually received?

Level 15

Why is she paying tax on it at all?  Was there a QDRO?  Have you seen it?  Did the employer issue a 1099 to her because the company is controlled by the ex and his friends?  Did she pay SE tax on it?  Most of the DC plans I have seen, issue a W-2 to the employee.  They may have done it right, but with this much involved, I would be careful about "assignment of income" issues.  

Level 15

Curious George would like to know who issued the 1099 NEC - The ex? - An Attorney? - The company that managed Deferred Comp? ???

Was SE tax paid on the 165K? 

Did IRS want addition SE tax on the extra $61K?

Did you get an IRS transcript to see who reported what income? 

Oh, so many questions, so few answers! It has been a problem my whole life!!! 

Here's wishing you many Happy Returns