If you receive a 1099MISC document in the mail, and there’s a dollar amount listed in box 7 for Non-employee compensation, the IRS treats that as self-employment income and you’re supposed to pay self-employment tax on that income. If you own your own business, that’s perfectly normal. By the way, I’ve got lots of blog posts and tax tips for self-employed folks on this web-site so be sure to check those out. I’ve got a list at the bottom.
But what if you’re not self employed? Really not self-employed. You’re stuck with a document that basically requires you to pay extra tax, what do you do?
First, only dollar amounts in box 7—count as non-employee compensation. If you received dollar amounts in box 1 for rents or box 3 “other income” you don’t have to worry about the extra self-employment tax. The rent goes on your Schedule E for rental income and the other goes on line 21 of your 1040.
But let’s get back to that non-employee compensation again. What did you do to earn that money? Is it in your field of work? If the answer is yes, then it’s going to count as self-employment income even if you don’t think of yourself as being self-employed.
I’m going to use my friend Rick as an example. He works for another tax company and he’s very good at what he does. Every year, Rick gets laid off on April 15th. My company stays open all year round and sometimes I’m super busy in September and October. I could probably use some extra help around then. If I hired Rick to help me with some tax returns, I’d give him a 1099MISC for the money I paid him and he’d have to report that as self employment income. Even though Rick normally works for another company, he’s still in the business of preparing taxes. The money I pay him for tax prep would definitely be considered self-employment income.
But let’s say I hire Rick to paint my office instead. Rick’s not a painter, he doesn’t do that as a business, he’s just helping me out because I need my office painted and I’m helping him out because he needs the money. We’re friends. Painting is not his line of work. So technically, he’s not self-employed and he shouldn’t have to pay self-employment tax on that income. It’s a one shot deal never to happen again. How do you account for that?
Well, it used to be that if you received a 1099MISC for non-employee compensation for under $1000 and you put that amount on line 21 of your 1040—the IRS would let that slide and not audit for self employment tax. But starting with 2013 tax returns, the IRS has announced that they will send notices to anyone with 1099MISC income (with non-employee compensation) on line 21 instead of putting it on a Schedule C—where it will be taxed with self-employment tax.
There’s no box to check or form to fill out with your 1040 to say, “Hey, I’m not self-employed! I shouldn’t have to pay self-employment tax!” So what do you do?
You’ve basically got two options:
One: Claim the income as business income and write off any and all expenses associated with the job. This is going to be the best choice for people who have expenses with a job like mileage or supplies.
Or, two: File your 1040, pay the self employment tax, and then file an amended return 1040X taking the income out of self employment and putting it on line 21 with the explanation that you are not self-employed and the income should not have been subject to self employment tax.
Why do this as an amendment instead of doing it that way the first time? Because the IRS has already announced that they are sending letters out to anyone who puts 1099MISC for non-employee compensation income on line 21. And they charge fines and penalties for underreporting your tax.
By filing and paying the self-employment tax first, then amending, you’re giving the IRS the opportunity to examine the situation and make a determination. You may win, you may lose. But if you win—the case is closed and they won’t come back at you. If you lose—it doesn’t matter. You already paid the tax and they can’t fault you. No harm, no foul.
Most people who receive a 1099MISC for non-employee compensation are going to be considered self-employed by IRS standards. You may as well file the schedule C with your tax return and pay the self-employment tax. If you think you might be an exception give us a call, we can help you sort out your options.
I drive my twins to a special preschool and am reimbursed mileage through the county to do so. The county sent me a 1099 MISC nonemployee compensation. I had no idea that this would happen when I decided to drive them myself and not have them bussed. Now I have to pay taxes on it and am considered self employed? Also, we switched homeowners insurance companies in which our mortgage is escrowed. We were reimbursed the escrow from the insurance company that we dropped. We received a 1099 MISC for that reimbursement as ‘income’?! Now we have to pay taxes on that too as if we’re self employed?
Hi Jan,
Thank you so much for this article – it is extremely helpful. For the second year in a row, I have found myself in this position. I worked for a small marketing agency. The President did everything he could to not pay taxes on his employees. We were expected to drive to the office every day and work from his home office for 8 hours a day 4 days a week. We were also presented to clients as employees — he gave us titles and positions and governed the way to perform our job roles. However, when tax time came around he filed us as independent contractors and put all of our income on line 7. Is it worth it for me to file a 1040X? I left in June of last year, and paid my estimated taxes but still owe over $2,000 in self-employment tax because of this. What can I do to amend my taxes and prove that I wasn’t self-employed?
Hi Kendra,
Yes, you can file on Turbo Tax with a 1099. Your husband’s business name is – his name. He’s a subcontractor for the delivery company, but as a sole proprietor, it’s “his name.”
Personally, I would go see the tax person. He probably does a bunch of returns for people like your husband. (I have a company that I do returns for several of their contractors. They all get a special discount for being with that company.) It’s probably worth the money to go to someone who has experience with this type of work.
I would think your husband could deduct his gas and repair expenses. I bet there’s other things he could deduct as well. By having the professional do the return, you can learn about what all he does so maybe you can do it yourself next year. (Or maybe you’ll decide you never want to do it again.) Either way, I think it would be wise to get some professional help this go round. If not, the company’s person, then someone else that you trust.
Hi Chris,
You’ve pretty much figured it out. The employer avoids payroll taxes.
If she’s claiming her mileage, then she needs a home office – take a small portion of her room and just use the safe harbor method. It won’t be a big deduction, but it will justify her mileage expense.
What about riding lessons? Horse magazines and books? Tack? Boots? I’m digging here, but if she’s working with horses I’m just trying to think of what might be a legit expense. Good luck.
Hi Peter,
Wow! Just wow. That’s quite a huge discount. I’d ask for my bonus in cash also.
Hi Ashlee,
Yowza! You know, I wish I had a nickel for every time someone told me they were getting paid “under the table” and the boss wasn’t going to report it They always report it once they talk to their accountant an find out how much tax they have to pay if they don’t report it.
Here’s a post that might help a little: Small Business Basics
Hi Jan!!
Okay I’m super lost on this 1099 form. My husband was hired for a mail delivery (like ups,dsl) they hired him as an “independent contractor” and I didn’t think anything of it a few months ago because I thought he’d get a regular w2, when the 1099 showed up and I went on turbotax to file it wanted his business name….??? It’s not his business. They give him a company truck (he pays gas and 50% on repairs) but it’s not his or in his name and states the company’s name. The shirt he wears has the company name…so how can I enter that business when it’s clearly not his.
I spoke to his manager and he tells everyone to file sole proprietor and sends him to this tax person….but I just found the entire situation shady. I looked on the irs website and I could have sworn he was hired as an employee but I guess not, so I’m stuck with a 1099 that turbotax wants answers to questions I can’t answer and I’m worried that I’m going to mess up and the irs isn’t going to see it that way.
Can you file with turbotax with a 1099?
He’s only worked there since November of last year and I don’t have the previous year of taxes or know what they should be…
His boss told him he can pay taxes quartly or at the end, but how and where?
I wish there was a dummie guide to 1099 filing because right now I feel as if I need it =(
Hi Jose,
you already reported the income, so there’s no big deal. But – you could get an IRS notice about this later. First issue – is the 1099 in your name, or your business name? If it’s in your name and social, you might want to amend your personal return showing you received the income, then expense it out to the business. If the 1099 is in the business name, I would just make a note of it with your tax return so that you remember this document. The IRS could come back in about two years with a letter saying, “Hey Jose, did you forget to report that income?” (Okay, they don’t sound quite so friendly.) Then when you go to your file you’ll see the 1099 and the note that you had already included that 1099 with your income already. And that’s what you’ll tell the IRS.
Hi Rosemarie,
it’s a 1099MISC listed on line 3 – that’s other income. It should be be taxed as self employment. There should a box where you indicate that it should go to line 21 of your 1040 and not to Schedule c.
Hi Matt,
So the money was a gift to you as being an employee. I’m guessing that you didn’t buy any stock in the company, you didn’t have an ownership share, right? So you got the money from the sale for being a good employee. Yes, it was a gift – but it’s a taxable gift. And, since you got it because you worked for the company – it will be taxable as self employment.
Now for what it’s worth, you might want to get a second opinion on that. But I’m thinking it’s self-employment, but you might find somebody else who would argue it differntly.
Hi Debbie,
I would list the income on a Schedule A, then expense the $800 to the non-profit. I wouldn’t put it as a donation, since he had to pay the non-profit. That would leave him with zero income from the event. I think that’s what you want.
Hi Andrew,
If the 1099MISC has the income in box 7 – then that’s self employment. And yes, that does open the door to claiming expenses that previously you weren’t able to claim. Congratulations!
Hi Jessica,
So your husband got a 1099 – he’s self employed. But I don’t understand why you can’t write anything off. I mean, it would seem to me that he’d have mileage, maybe a home office, maybe some cell phone expenses – am I right?
Maybe he does have nothing, but usually if you dig you can come up with a few deductions.
My wife works in a major dept store in the Fine Jewelry section. As a bonus she received jewelry she could acquire with her employee discount for about $600, yet the amount on the 1099-misc is $2500. Since I have a BS in Business from FSU it was easy for me to immediately see what they are doing. I told her that any bonus needs to be cash from now on. Does the IRS support this rather blatant juggling that hurts the individual and supports the company? If so, why? Who is being paid off for this bogus bs? And, when will they finally completely revamp the whole damn thing which is what the vast majority want?
I received a check from a former employer after the company sold. It was given as a portion of the sale to employees as a gift. It was recorded on line 7 of the 1099-MISC form. No work was performed to receive the check. Do I need to complete a Schedule C for this money and pay self employment tax on the amount?
Hi Tanya,
Yes, you do.
My husband works for a non profit. He was asked by a university to speak at an event. He did & earned $800. His employer (the non profit) required him to submit the earnings to them. He endorsed the check & gave it to the non profit. Now we have received a 1099MISC with his name on it (no mention of the non profit for whom he works). We did not receive the $800 and because of how the 1099 lists only him, we are required to include this as income? Is there something we can show that we did not actually receive the income?
Jan,
Thank you for posting this article. My wife and I recently had this situation come up and were surprised by the tax liability associated from receiving a 1099 from an employer. My wife is a school teacher who received a $10,000 bonus as part of a state funded bonus program. The check for the bonus was issued by her employer and she received a 1099-MISC form that reported this income on box 7 as nonemployee compensation. I did not realize that this income would be taxed as anything other than regular wages. Are we required to pay self employment tax on this income? And, if we are required to pay nonemployee taxes as an independent contractor, does this open the door for us to claim additional expenses in connection with her job that she would not have otherwise been entitled to as a regular W2 employee? Thank you so much for your assistance in this matter.
Hey. So my husband worked for his dad who is self employed. Which makes him have a 1099. I know nothing about taxes I just felt like we got screwed last year when he did our taxes. We were also told last year that we could not write off anything. So how do you recommend I file?
I like the way of paying SE and amending after, with income of box7 to line 21. It might work….once and it is perfectly legal.
Hi Jan,
My husband worked for a farm last year. Two months he worked for them they deducted taxes out of his pay check. The other 8 months they tols him they would not turn the income in on taxes. Well we ended up getting a 1099 from them saying we need to pay taxes on almost $22000. Any suggestions on what we need to do? Anything we can deduct to get a better return?
Hi, my issue is a bit bizarre. I own a business and have an ein and all. I’ve filed my business taxes and my personal taxes. A vendor I performed networking services for sends me a 1099 today. This income was already reported on my business taxes. Is this 1099 a mistake? I did work under my business and not personal. How would I go about reconciling this?
I received a 1099-MISC for the survivor benefits I get from my husband’s former company. The income is listed on line 3 of the 1099. Turbotax is putting it in as self-employment and saying I owe over $600 in taxes on a little over $4400. I am disabled and not working. Do I really have to pay that tax and then amend the return to fix it? Is there no other way to record it for what it is the first time?
HI Jan
I need your help
I work for a Title Company and my boss needed the office painted.. I offered to do it for $1800.. well I’m done painting and thought i would just get a check but it turns out she is taxing me on the money.. She said i can either 1099 you or include it in your paycheck.. so now the $1800 we agreed on after taxes ended up being $1300…. do i really need to pay taxes on it.. ?
My daughter worked for a boarding stable from August to December 5/6 days a week. She was 1099 with reported income in the nonemployee compensation. I’m just a bit confused why that is self-employment income. She got paid $450 every week in cash. I’m assuming that it is done this way so the business avoids paying employment taxes and workers comp. Any suggestions on how to file her tax? The only expenses she would have is the gas mileage it took her to get to the barn everyday.
Hi Jesse,
Missouri has a similar program. And I’m sorry, but yes, it is taxable. It’s still a blessing to receive the aid, but there are tax consequences. Make sure you wife writes off any business expenses she has for caring for your daughter. I’m not sure what that would be – but if she has any, definitely write them off
Hi Audrey,
Hmmm – is the job worth it? I remember my daughter getting a summer internship where she wound up paying to work there because she paid for parking. Geez! But, $15 an hour is pretty good for a college internship. Figure how many hours she’ll work, and multiply that by 15.3% – that will be the tax. She will need to file a schedule C – so she should write off any expenses she can (meaning she’ll pay less taxes.) She should also check out this post: Small Business Basics
January 30, 2017
My wife received a 1099-Misc, for TY 2016, for money paid her by a Texas State Agency [Texas Department of Human Services] for HOME CARE PROGRAM or SERVICES for our totally disabled daughter [in lieu of our daughter being institutionalized].
Box 7, Nonemployee.
My wife, my daughter’s biological mother, is not trained or certified or educated in home care services.
Is this taxable money? Does my wife have to pay self-employment taxes on this money?
They did not withheld any taxes from the monies paid.
Hi. My 21 year old college student daughter has been offered a position in a small non profit organization for the summer. They have told her they will give her a 1099. The position pays 15 an hour and involves commuting about an hour each way. My question is will this job be worth it? How much will she end up paying in taxes, medicare etc.. ? Also, if she was receiving a w-4, because she is a dependent student and not making much as a part time worker, she would receive a refund of all her federal and state taxes. Would it be the same in the 1099 situation? Thanks for any help
Hi Renea,
well, you went to do jobs with him and he paid you so yes, he would need to issue you a 1099. Had it only been a one time thing – then I’d agree that it wasn’t your job, but you did it on and off throughout the year. I’d file a Schedule C, at least write off your expenses.
I helped out a friend on some handy man type jobs off and on throughout the year. He always just paid me in cash however much he thought was fair. We never had any types of contracts or agreed upon a set amount to be paid, the jobs varied, painting, tile, sheetrock, etc. I just went with him when he asked for help. He now has asked for my SSN because he wants to fill out a 1099 on me as a deduction for his sole proprietorship. Is this right? This is not my normal line of work, I work with fiberoptics.
Hi Teresa,
Technically, both of those would be self employment. I would have them claim their expenses against their income.
My 18 yo daughter received a 1099MISC from her employer. She performs bookkeeping for them part-time. She received either a check/cash for wages, with no taxes held. She is not self-employed. How should I file her return?
Also my 24yo son received a 1099MISC from his union for attending a training class. He is a union laborer. He received a W2 from his employer. I feel this is not correct, but not sure how to proceed.
Any help would be greatly appreciated.
Hi Ann,
It seems like you’re not in the business of planning parties. I’ve claim that as other income on line 21 of your 1040, not as a small business. I’m not an expert at worker’s compensation. I’d call them and ask, “Am I allowed to earn any income while on workers comp?” Then you’ll know.
Hi Vee,
Here’s a post that might help you: Small Business Basics You’re being treated as an independent contractor so you’ll want to write off as many expenses as you can. By writing off your expenses, you’ll reduce the tax burden.
At least you had some wage income so it won’t all be taxed as self employment!
Hi, I’ve been on workers compensation for the entire year, my only taxable income this year is an early withdrawal on my 401k to help me get by. I helped out a few friends and aquaintenances by renting the halls, planning and decorating for their parties and making the decorations and table centerpieces. My earnings totaled $2000, but I was paid cash, my question is, do I file those earnings even though I don’t have a 1099, and will that effect my workers compensation? Can workers compensation find out about those earnings if I file them in my taxes? I don’t have a business I basically just planned these parties for extra money to supplement the loss being on workers comp. Thank you for your help
Hi Jan,
I am in a bit of a complicated situation. I am a recent college grad and I got my first position with a small company. The company hired me in October and I was on the books until December 9th. They took me off of the books and have been paying me the amount that i made when i was on the books after taxes.
My boss promised me that he would give me the money to pay the taxes back on the payments after December 9th, because they were going to file those payments as though i was an independent contractor.
I haven’t received a 1099 form from them yet, but I am anticipating it.
I also had an internship that i held for 3 years while i was in college that was under the books. My boss there never filed taxes on my payments before, but this year since I left, he has decided he wants to file a 1099 on those payments for 2016 as well.
I am worried that I will owe back a ton of money this year and I’m not sure what to do.
Hi Smith,
That’s strange. First, the couple should be asking for a W9, not a 1099. Second, you’re right, a personal family does not need to issue a 1099.
For what it’s worth, your fiance should still report that money they paid him as income, and he is self employed and he should pay self employment tax on that income. But she should not receive a 1099 from a private family.
Help anyone!
My finance does remodel type work. He painted a house for a couple who lived at the residence. They paid him for his services at their personal home. They are now requesting a 1099 from him. Is this something he must provide since it was personal not business to business. They paid with a personal check and they did not hire him as an independent contractor because they are not a business…I’m confused! Isn’t a 1099 sent from a business owner to someone they hired as an independent contractor???
Jan: The reason I had no tax on the full amount of the sale was because of my very low income that year, having just entered retirement.
Add on to comment: I actually had a line 21 explanation form (that is part of their collection) with the return where I explained the transaction.
Jan: I did buy the billboard and was thinking of just putting down the profit until I realized that since I used it in business for a long time it was fully depreciable (depreciation ‘allowable’ according to IRS rules) even though I never actually took the depreciation. I didn’t wind up with any tax even on the full amount since I had just entered retirement that year. So no need to amend the return, but what I am talking about is a corrected 1099 showing the proceeds as ‘other income’ instead of non-employee compensation in an effort to either head off any letter or to be used as a defense.
Another thing: do these letters just go out if the IRS sees a box 7 1099 with no schedule C for it? Or is it possible that they might look more carefully before sending the letter? 2
Hi Gene,
I think you’re right. They bought the billboard, you weren’t working for them. If you do get a letter from the IRS, I would just explain the situation. Although, being a tax geek – I’m guessing that you paid money for the billboard in the first place and that you’ve got “basis” in it. That means you should be able to deduct the basis from the sale price and only pay tax on the profit – and, if you held the billboard for more than one year, the profit would be a long term capital gain. I would have reported it on form 4797.
Is it worth amending your tax return for? It depends upon how much that billboard was worth and how much basis you had in it. It might just be a waste of time. If you wouldn’t get back any money, I wouldn’t bother with amending. But if you paid a substantial amount of tax on that transaction – you might want to think about it.
Jan: In 2015 I entered into a contract with a small city in California where they bought a billboard I owned so they could remove the same as a beautification effort in the city. They sent me a 1099-MISC and reported the proceeds in box 7 as non-employee compensation. I didn’t research the matter terribly at the time I filed for that year and wound up reporting the proceeds on line 21 of my 1040. Now that I’ve read your article I’m concerned that I might hear from the IRS someday demanding self-employment tax on the amount of the sale. I certainly don’t see how or why I would have to pay self-employment tax in connection with a sale of tangible property. I haven’t hear from the IRS yet, but out of fear that I might I have requested that the city send me a “corrected” 1099 placing the proceeds in box 3 instead of box 7. I’m thinking that with a corrected 1099 the IRS may either never send out a demand or that if they do I can use the corrected 1099 to defend my position. Don’t you think that if you get a 1099 with proceeds in box 7 trying to get a corrected one is a better approach to this situation?
Hi Katie,
First, I’ve got another post for you to read: Small Business Basics
So yes, it sounds to me like you were an employee, but you said “roofing company” and quite frankly, those guys often only use contract labor. Plus you only worked there for two months so fighting to be treated as an employee is probably a waste of time and effort.
I’d go straight to doing your schedule C and write off everything you can! Home office – because clearly you’re self employed so you must have a home office. Mileage – because you traveled from job to job – that is your home office to the roofer’s location. And you probably need to write off your internet and phone expenses for the time period as well.
I hope that helps a little.
Hi! I worked for two months, as a marketing manager, for a roofing company. I received a 1099, and I’m so confused. I was paid hourly, required to be at all “team meetings”, and never even considered myself an independent contractor. I still haven’t filed 2015 taxes (yes, I know about the penalties), because my brother (who also worked there) is in litigation with the company. I’m wanting to go ahead and file now, but have no idea what to do! Any suggestions? Thank you!!
Hi Patti,
Wow, that’s a lot of tax for a small amount of income. You reported the income on line 21 already, so even if you’re in the top tax bracket – you’ve already paid the income tax there. And – if you’re in the top tax bracket – well then you might not be subject to self employment tax because you would have maxed out your social security. Hmmmm.
Hmmmmm. $2600 at 15.3% is 3987.80. That’s my quick and dirty method – but the actual is equation should be 2600 times .9235 which is 2401.10. I’m being anal here because the numbers the IRS is giving you aren’t making sense to me. Anyway, you take the 2401.10 and multiply that by the .153 for the self employment and you get 367.37.
Okay, but there are penalties and interest. There’s a really nice IRS penalty calculator (I don’t get paid to advertise them, I just like this website.) Here’s a link: https://www.irscalculators.com/IRS-penalty-calculator Using the calculator and rounding up your tax to $368 I get that you owe $423. That’s assuming that you filed your tax return on time. If you didn’t file your return on time (which I doubt) the penalties are higher. The faillure to file penalty would bring you up to $564.
So your thoughts are correct. Something is wrong here. It would be money well spent to have a professional take a look at this.
Hi Eric,
That’s a head scratcher. My first thought was that the income would go to the estate and then it would be reported in box 1 of your K1. Then it would be ordinary income. But from what you’re saying, it looks like the estate is settled and you’re a quasi partner – getting paid the $2000 a year. Hmmmm. I’m inclined to agree with you that you’re not really in the business of selling these patterns.
My first thought would be to write back to the IRS, explain that you are not in the business and respectfully request that they keep your income on line 21 as it has been. If they turn you down, well then Eric, I guess you’re in business. But now you’ll have to deduct your business expenses. It seems to me that your home office is absolutely essential for your “business”. Also, how many miles do you have to drive each month to the bank to deposit those checks? I believe that you need a cell phone in case the company calls. And of course you need to pay for an internet connection so that you can keep on top of the company.
Am I being a pain in the backside? Yes, I am. But to me, you’ve got a pretty legitimate claim for not being self-employed. But if they want to call you self employed – then use it to your advantage. They’re the ones that opened up Pandora’s box.
Hi Eddie,
You got me there. I wrote that back in 2013 and I can’t find the announcement anywhere. (Although I’m quite sure I must have read an announcement at the time.)
That said, what the IRS is saying today is that if you receive a 1099MISC and it is hobby income, you report it on line 21. Here’s that reference: https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/interest-dividends-other-types-of-income/1099-misc-independent-contractors-and-self-employed/1099-misc-independent-contractors-and-self-employed-1
Wow, that’s really a long url!
That said, don’t be surprised if you do get an IRS letter for putting 1099MISC income on line 21. But if you do, you just need to explain that it really is a hobby and not a job.
Hi, Jan. My husband and I both received 1099-misc for 2014. Mine was for teaching yoga and my husband’s was for taking pictures of sports events at a local university. Neither of us are “self-employed”, in fact we both have completely different occupations than what our 1099’s were for. We filed this income (a total of $2600) under misc. income. Now, the IRS is telling us that we owe them money for self-employment tax. Based on some of your other responses here, I gather that this is normal. What seems very wrong, though, is that of the $2600 combined income for my husband and myself, we were told that we owe $1200 in taxes. That is just shy of 50%, and everything that I am reading states that SE tax is 15.3%. We have already sent in an appeal, which was denied. I am not sure what I can do from here, but having to pay an almost 50% tax on such a small income just does not seem right. Any suggestions?