Is a taxable grant subject to SE tax. Funds were used to create a pod cast

[Jim-from-Ohio]

No. 

[IRonMaN]

Based on limited facts - maybe

[14astockholm]

Appreciate the response, perhaps some more facts will clarify:

Grant funds were disbursed monthly, grantee submitted invoices for reimbursement of labor/hrs spent doing research, interviews, expenses (office space rent, software subscriptions, office supplies). Total labor and expenses equaled total amount of grant.

Grantee created and maintains ownership of pod cast.

Grantee is self-employed freelance journalist. Wouldn't total amount received on 1099-G be reported on Sch C, with expenses deducted. Net amount of grant $$ subject to SE tax as well as income tax.

[sjrcpa · Accepted solution]

I vote Yes, subject to SE.

The grant is part of Sch C Gross Income.

[IRonMaN]

I'll second the yes.

[qbteachmt]

Unless you can find a specific piece of legislation that covers this specific grant, then you treat it as regular business income. You don't report it Net. You report it Gross.

Examples: The Feds gave funds to the States, which gave them to health care providers to enhance HVAC systems during covid. That specifically is exempt.

Fisheries gave out grants during covid, but these were listed as market consideration, not remediation, and are ordinary business income.

Sometimes they are reported on 1099-G and sometimes 1099-Misc, and that doesn't seem to differentiate them, either. The issuer might not be a governmental entity. Example: Food banks and farmers are NGO.

Yes, subject to SE.

[qbteachmt]

I just realized (it's been a while) that you might have a taxpayer with a covid-era entertainment grant? If you find out the grant type, the grantor, and the State, you can research this, but if that is entertainment, this for certain is business income. I had that tab on the web open for my State for nearly two years, watching the grant process. I have lots of replies on this forum from the prior two years of grants like that. I didn't realize anyone still had money to spend in 2022. Some States supplemented the Fed amounts, though. I think it was someone from the CA Bay Area that had a late question regarding this type of business support.

[14astockholm]

Thank you.

I agree, but was getting push back from client. To clarify, grant was given by a small city for Arts & Culture Funding, nothing to do with Covid.  Yes, the grant funds are recorded at the gross amount on Sch C, then expenses are deducted. What nets out is the bulk portion of the grant that was used to pay the grantee's labor hours X grantee's hourly rate, which were submitted by grantee via invoice.

[qbteachmt]

"I agree, but was getting push back from client."

So what? The client is not the one signing as the professional preparer. You likely get a lot of pushback for various reasons. How often are they right and not you? Do you have supporting documentation or information? Why not? It's typically pretty easy to find on the web.

Without more details, no one can find that grant for you using web resources. As I mentioned, there are lots of these posts from the past two years, and the specifics help you find the Grant, and any related commentary from the specific State Revenue Dept. Or, the client needs to tell you the name of the grant, then you post it here. We can't help, because we don't know anything else.

"To clarify, grant was given by a small city for Arts & Culture Funding, nothing to do with Covid."

Are you sure? The Fed funds filtered down to Main Street USA. Again, without more details for the specific grant, no one can research this further. We don't even know which State this it.

[qbteachmt]

Wait...

"used to pay the grantee's labor hours X grantee's hourly rate"

That's how they justified the amount they got paid.

The perceived value of that time is not a Business expense on a Sched C. The labor for the owner of a Sched C business is never an expense to the business.

[14astockholm]

Not sure where you are going.  I did my homework, interviewed client as to nature of grant, use of funds, etc. I have a copy of the grant, copies of invoices submitted. Grant was given by a small city, the funds of which were derived by a local "Lodger's Tax" collected from hotels and motels. I never stated that the invoices the grantee submitted for labor were deducted as business expenses. This is a self-employed individual who received money to develop a pod cast that she is now free to keep in a dresser drawer or market to an audience.

As to the push back, I was merely throwing out the question to further substantiate the fact that income and SE taxes are due.

Thank you for your time

[qbteachmt]

"Not sure where you are going."

What you stated here: "then expenses are deducted. What nets out is the bulk portion of the grant that was used to pay the grantee's labor hours X grantee's hourly rate, which were submitted by grantee via invoice." is not a tax reporting issue. You didn't state it wasn't part of the business financial info, but you included it here. We can't read between the lines, and others might find your topic, so, well, I guess we try do to read between the lines, just in case.

"I did my homework, interviewed client as to nature of grant, use of funds, etc."

Then you were looking for confirmation? Again: unless you find a legislative action to the contrary, this is regular, reportable, taxable, business income. Did you check to see what the State tells you? For instance, here's mine:

"Unless expressly exempted by federal or Montana law, grant income to businesses is included in a business's federal taxable gross income and, therefore, included in Montana taxable income"