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.
Hi Martin,
So your friend is getting paid a settlement for a contempt of court action. I am assuming that this is not self employment income. I’ve been trying to think of things to make it self employment income and I can’t come up with anything. More likely you’re looking at a child custody case or something like that? (There’s a lot of tax fraud cases that have contempt of court, but I’d thing your friend would have a tax attorney on that one!)
I would put that income on line 21 of the 1040. Your friend may get a letter from the IRS, but I don’t believe that it should count as self employment income.
Hi Melissa,
That’s exactly what you need to do.
Hi Dawn,
You’re right, it should not have been box 7. That sounds like a mistake to me. First, I’d ask the seller to correct it. If they won’t, then I’d file your return reporting the sale properly, but I’d add a statement that the 1099MISC was for the sale of the mobile home. Expect to get an IRS letter! But then you’ll just respond to it explaining the situation. That should take care of it.
Hi Diana,
That really is self-employment. You have a skill and you taught it. You could write off any expenses you had for teaching the class, like what you paid for your class or license if you have one. But, you’re kind of stuck. Sorry.
Hi Carl,
Okay, I confess, I went and scoped out your contest photo. That’s pretty awesome! Congratulations! Now, it seems to me that a contest is a contest and that it should not be put in box 7 – but I can see how Beachbody may have come under some scrutiny and was told they had to report that in box 7.
So – let’s run with it. If they say it’s a job – let’s make it a job. You worked hard to lose that weight, right? So, I understand that you worked out every day. Hmmm – you must of used a home gym for that workout – must be a home office, so we’re going to deduct that. Now, normally I’d say a home gym wouldn’t be a deduction, but your special circumstances make your workout a job. I wouldn’t recommend that for most people.
Plus, there are the DVDs – I’m guessing that you had to pay for those. And what about the membership fees? Don’t you have to buy some type of shakes or something like that? Any money that you spent on losing that weight – and making yourself healthy I would write off as your business expense.
My logic thinks it shouldn’t be taxed as a business – but, if that’s how they see it, then by golly, that’s what they get. So – I really hope that you can come up with enough expenses so that your tax bill for the $25,000 as self employment is less than what it would have been had it been taxed as a contest.
And if the IRS doesn’t like you writing off the expense of losing weight, then they shouldn’t force Beachbody to list contest winnings as self employment.
Hi Braeden,
Generally, money received in a discrimination lawsuit is taxed as ordinary income – not self-employment income. Although I don’t know if you can get your employer to refile that 1099. I would still claim the income on line 21 of your 1040, maybe adding a statement that it was for a lawsuit. But expect to get a letter from the IRS – and when you do, you can give them all the court case documentation to back up your claim then.
Hi Jenn,
Sorry I’m so far behind on this but I got wrapped up doing tax returns. Here’s the deal – you technically are self employed. Sounds like you’re a professional artist. Congratulations. I actually do returns for a number of artists who would love to have your problem.
But, it is a problem. But there are a number of ways around it. For 2017, you could work and earn up to $1,170 a month. That’s $14,040 annually. So if you made less than that – well you’re safe.
But what if you made more than $14,040? As self-employment income, you’d be putting that on a Schedule C – which is a part of your 1040 tax return. And you’d be writing off your expenses against that income – for example your internet expenses, the cost of your camera work, supplies, and maybe home office expenses, etc. So you see, it’s pretty easy to reduce that number down to keep within your social security limits.
But let’s say you really made way more than the $14,040 and even claiming all of your expenses you’re way over the limit. Okay, I get that that’s pretty unlikely since you’re arguing that this is just a hobby, but just in case – it sounds like you’re pretty talented. If you’re at the point where the business is making that much, then you really have a business. But you can turn your business into a C corporation. That’s a regular corporation. A corporation is a separate entity. You would pay yourself a wage from the corporation – for less than what social security allows. The profits can stay in the corporation and be taxed by the IRS at the corporate level, and you can earn dividends – which is not earned income as far as social security is concerned so you’re not violating your disability rules.
Now before anybody starts posting about how I’m trying to game the system – that’s not my intent. If you’re disabled – it’s really difficult to qualify for those social security benefits. And – if you get kicked off, you have to start all over again and it can take years! And for someone in Jenn’s situation, where she’s not really at a job – but kismet allowed her to make a little money–you don’t want her to lose her benefits. It’s not the monthly check that’s so important, it’s the access to healthcare – and if you’re disabled, those costs can be astronomical.
What about an egg donation? I donated my eggs twice in 2016 and received $17,000 total. I wouldn’t consider this self employment – I had a full time job the entire year. Also, the donation was done without the intent to earn money…
Any insight? Thanks!
I receive a 1099 misc for my office work at a religious non-profit organization. We are technically employees but the non profit organization has opted out of withholding taxes and turn it in as a 1099 misc. We do not own a business and can not negotiate our pay and consequently have no business expenses to deduct. Do you have any suggestions as to how we can file this without having to pay self employment taxes ?
Hi there,
So, I received two 1099-MISC for the work that I did for a self-employed psychologist. While I am being treated as an independent contractor, I have no business whatsoever. I have filed as self-employed, though I do not believe I filed a schedule C because I did not have any expenses to report. I understand that I should be filling out a 1040x to amend my return, but I’m unsure of how to fill this form out. Any advice would be most appreciated!
Thanks!
Hello, Jan.
My college aged son received a 1099Misc from our local middle school this year. He worked the scoreboard and sometimes kept the official score book for basketball & volleyball games. Mostly they were held at our local middle school, but sometimes they were on the road at other schools. Over the course of the year, he made about $1200, and it was reported in Box 7 of the 1099Misc. This was his only income, so there was no W-2 – just this 1099Misc. He’s never filed taxes before.
I’m assuming this means he’s considered an independent contractor, and thus self employed, and must file a 1040 with a Schedule C? If so, can he deduct the mileage for driving to the games? Will he also need to file a state return since it appears that the state taxes would be $0?
My son is a Fine Arts elementary teacher. He was selected to be the “director” for a week long science workshop for students during the summer. He received $1600 and a 1099-MISC. Why is this considered self-employed? He basically worked that week for free!
If the same employer sent you a w2 for salary and 1099 for bonus and you pay the proper tax when reporting the 1099 but don’t correct it as to not rock the boat at work, can you use any of the 1099 money to fund a solo 401k. Sort of getting the good and bad of the irregularitie.
my father in law is 95 and he just received a 1099 misc with the amount in box 7. It was for health care payment reimbursement. One of his pensions pays for his supplemental health care. This year they decided to send out a 1099 misc in order for him to pay taxes on the amount. I believe it was marked in error. It should have had the amount in box 3 or box 6 so that it would not subject him to SE taxes. Or they should have amended the original 1099 r for the pension to include his total pension instead of subtracting the amount they paid for his insurance. how do we fix this now?
You have to pay a HUGE fee to file the 1099-MISC on TUBO TAX!
I can’t afford to pay that. I just need the forms!
I was working for a company that closed down. Beefcake Burgers in Plainfield, Indiana. I was NOT self-employed. I recieved no (ABSOLUTELY ZERO!!!!!!!!) letters from neither the company nor the IRS. Please LISTEN. I DO NOT KNOW WHAT TO DO. I CAN”T FIND THE CORRECT FORMS. THE IRS IS LEADING ME IN CIRCLES. The company on the form is:
New Beginnings Restaurant Group
XXX Solana BLVD
BLDG 2 SUITE XXX
Westlake TX
I have a 1099-misc, but I have no idea what to do with it.
I currently have no way to pay any one. I just need to know what to do and the correct forms.
PLEASE HELP ASAP!
Here’s an interesting problem:
My wife is employed by a private (Catholic) school. She’s required to teach college speech, however, the university that oversees this program requires her to gain 18 credit hours at the master’s level. The local public school program has a tuition reimbursement program for such training, and her school has filled out the paperwork so we are not “out of pocket.”
The local school board sent us a tuition reimbursement–and, then sent us a 1099-MISC for “non-employee compensation.”
While the amount falls well below the $5250 tuition reimbursement deduction, it’s for graduate credit. However, her employer has required that she get this training in order to do her job.
Are we liable for the self-employment tax at this point?
Before my brother’s partner passed away, he made arrangements through his employer to pay my brother a year’s salary upon his death. My brother received 2 1099-misc, one for the salary and one for the gain on liquidation of employee stock. Both were reported in box 7. Why wouldn’t they be reported in box 3 since he’s done no work for them? Does he have any recourse?
Hi,
My daughter got a 1099 MISC (box 7) income of $2200 for a high school summer internship at a BioMedical research lab she did last summer when she was 17. From reading blogs sounds like she has to file her return. What is the easiest way to do it and avoid the SE tax and use any free software? TT is charging $59 for deluxe and it seems high to me. Thanks.
I got a $750 bonus for getting another person to come to work where I do. I received a 1099-misc line #3 $750 ..Where do i file that on 1040 …I thought I could file it on line 21 but now I am not sure. Thank you so much
I received a 1099 Misc from my employer as a compensation from a lawsuit that they won, the amount is in box 7, I am not self-employed, still an employee. Where should I report this amount in my 1040. Line 7, Sch C or line 21?
Thank you
I took a job as a Box office Manager for a local theatre. I was put on a 1099 pay and told it was temporary. A year later, here we are, still on a 1099. I am by EVERY letter of the IRS code, an employee, I do NOT fit the “independent contractor” profile. Is there anything I can do to fight this? I am NOT self employed
My husband works in sales, and a vendor for the company pays a bonus directly to the salesperson for each sale of their cabinets. At year end they send a 1099 with the bonus reported in box 7. Should this be reported in box 3 instead?
My son worked for a roofing company (his brother’s in laws own their own business), for about 2 months. He was driving to different locations working on fences and whatever needed to be done. He was paid by check for the gross amount each week. He received a 1099-Misc, income in box 3. The 1099-Misc didn’t have the employer EIN or my son’s SSN on it but we are going to file it with his other W2’s (he had about 3 jobs in 2017). How do we file this correctly?
Help! My husband is a Professor at ABTU online and has been with them for 3 years, never stopped. Last year, the 1099MISC was in box 3, however, this year it’s in box 7 with nothing else filled out. What do we do? He’s not self employed at all, and why the change? We are at a loss as it will not go through at all in TurboTax with just box 7 filled out. Help!
My 19 yr old daughter worked for an assisted living facility and the lady issued a 1099 misc. She’s not a certified caregiver and She’s not a business and this was the first time assisting elderly is this the correct form that was issued where she has to file as a business owner?
Hi. My question is probably simple, but I am struggling with how to apply the law. I received a 1099MISC for $1000 in box 3 as a referral incentive for referring a new customer to a business of which I was a customer. My tax software is telling me I have to claim self-employment taxes even though I populate the box that indicates I was not self-employed. Does this meet the criteria above for the 1099X after submission? What line or form do I include it with when filing my 1040?
I am in a unique situation. I am the full time director of a teen center but I do not get paid. My wife and I both make a small amount of earned and taxable income but the rest of my family family’s needs have been covered by gifts from churches and individuals who want to help.
Here is my question. I filed my tax return on all of my legitimately taxable income and then right after I had filed, I received a 1099misc for $1800 (box7) from one of those supporting churches. I had completely forgotten about giving them my SSN or else I would probably have waited a little longer to see if I was going to get one from them. Now, I have no problem filing an amended return and it will actually give me some additional refund but I am not sure that I should since this was given to me as a gift. Am I required to file on it. I can’t help feeling a little guilty for getting more refund since I know it was a gift.
A friend receives a settlement for contempt of court (civil action) which is paid out over the course of 4 years. Friend has signed copies of Consent Order, Final Settlement Agreement, and Promissory Note. Friend has received direct deposits as directed by Promissory Note for initial year (2017). All monies were to have come from a husband and wife (which the contempt of court was filed against). Friend received a 1099-misc from that husband and wife’s business with the amount paid for the year listed in block 7. How should friend handle this when filing taxes?
My 17 year old is a student and works part time at a local farm as a farm help. They gave him a 1099-Misc with his pay in Box 7. He is not self employed so how do I file taxes for him? He made 10920.00 last year. Does he file a Schedule C-EZ and write off milage and items purchased for the job?
I received a 1099 MISC box 7 for the sale of a mobile home. This cannot be correct. Anyone have any ideas what I need to do?
Hi.
Thankful to have found your article. I too received a 1099 misc and am not self employed. I am a retired Firefighter/Paramedic. Last year I helped a friend of mine and a local hospital with Paramedic class practicals. The hospital paid me, and sent the 1099. It is over the $400 amount I keep seeing in questions but less than $1000. I had every intention of putting it on line 21, but wondered what to do about SS and medicare payments. Since it was a one time thing was hoping to avoid extra taxes.
hi, I won 25,000 in a contest from Beachbody LLC I received a 1099 with the winnings placed in box 7. I contacted the company and they stated that this is how the IRS required them to report winnings. This was a contest open to anyone and is a one time entry. How can this be reported in box 7 ?
Hi,
I settled a discrimination lawsuit against my employer. Part of the settlement went on a W-2, but the majority was to go on a 1099. I received the 1099 the other day and the amount was placed in box 7 (I expected it to be in box 3).
Should I ask my employer to refile a revised 1099 or can I work with the 1099 as it is? Thank you.
Hi Jan,
I am currently on disability amd wanted to take a trip last year (2017), so I sold some artwork online (photos to be specific, yes, they were my original work). What I didn’t realize is that one particular company/individual ended up buying a ton of them & is now asking for my SSN in order to issue a 1099…. Is this correct? I’m concerned because 1. my disability benefits & 2. this is not a job, I’m not self-employeed, it was non-commissioned work, it’s just a hobby that I happened to sell some of online. (Think Etsy or Ebay) Any thoughts? Suggestions? Or did I just shoot myself in the foot by selling?
Hi Sheila,
You were paid for legal services. That sounds to me like you did some type of legal work for this company. they didn’t pay you as wages, so it sounds like you were self employed. Sorry, you need to file a Schedule C and pay the self employment tax on that income.
Hi Michele,
Let me make sure I understand. I’m just going to name “someone”, “Fred” just to make things clearer to me, okay?
Fred gives $1,00 to Michelle to purchase a vehicle. Michelle buys a car. Then, Michelle sells the car for a profit. Michelle then pays Fred $1,250. Is that right? I mean, I’m making up the numbers, but that’s how that works, rights?
So I think that if you asked other accountants, you might get other answers. It sounds to me like Fred is giving you a loan, and you are repaying that loan at a 25% interest rate. I would report the payment on a 1099-INT and report the 25% as interest in box 1. That’s my opinion.
But I can see someone else counting it as business income, where you report 100% of the entire amount you give Fred – the whole $1250 in box 7. Then Fred would write off the $1000 that he gave you as a business expense. And even having Fred issue you a 1099 for the money he gives you.
I don’t see the box 3 other income as the right way to go, but I’d guess that if you got another opinion, someone else might agree with you.
I work for Gm. I rec’d a 1099-misc for a legal services that are taxed now. They have put it under box 7, nonemployee compensation. How in the world do I file. I’m not self-employed.
I have someone who gives me money to purchase vehicles. When the vehicles are sold I reimburse them the money they gave me to purchase the vehicle plus 25% of the bottom line profit from the sale of the vehicle. I report this 25% profit on 1099 MISC box 3 “Other Income” correct?
Hi Ricardo,
You received a 1099MISC for an insurance claim? With the proceeds in box 7? I have seen that before, but in that case the man was working as his own general contractor on the home that was being repaired. Could that possibly be your situation? If that is the case, then you would report the income like business income.
But, if you received insurance proceeds and you were not the general contractor, that doesn’t make sense. You might need to call the insurance company to find out what they were thinking.
Hi Jesse,
Protect yourself from what? You worked and got paid. You had bills to pay. It was good of you to help your friend, but you didn’t do it for free.
The best thing to do is tell him what he paid you to the best of your knowledge. Give him a W9 so that he can report it correctly. Then, report what you made on your tax return. Be sure to write off all of your expenses you had working for your friend.
Even if your friend never gave you a 1099, you’re required by law to report the income. So really, it’s no harm, no foul.
How do I report a 1099-Misc for insurance claim settlement on my primary property for loss of use? I do not have a business. How can I deduct this? Any help, thanks!
How do I report a 1099-Misc box 7 for insurance claim settlement on my primary property due to loss of use? Any help thanks.
Ricardo Busquets
I helped out a friend who does landscaping cause he was going thru a difficult time finding steady employees. He controls everything in his business where and when employees report for work the vehicles materials uniforms ect.. He has a LLC.
He in return said he would give me cash to help with bills I was behind on. He never had me fill out a w9 and now is informing me that he needs my ss number cause he’s going to send me a 1099 form and has not kept any record of hours I worked or what he payed me and is going to take a guess at what that amount is.. what should I do to now protect myself.. Do i have to report this? If he didn’t give me a w9 or a 1099 or have me fill out such paperwork upfront don’t I have the right to assume he is responsible for withholding taxes?
Hi Heather,
I agree with you. In my opinion, you should not receive a 1099MISC at all, you should receive a 1099-C cancellation of debt. I would contact the place that gave you the 1099 and request they fix it. If they refuse to fix it, then they need to explain to you how it’s not debt forgiveness but self-employment.
If they are counting the loan forgiveness as pay – then they should be including it on his W2! (Once again, my opinion only but really, counting it as a labor cost is horrible for you.)
Hello, My husband works in public service and because of this he was offered student loan forgiveness of 10K a year for 3 consecutive years. 2017 was the first year he was credited 10k. Well we received a 1099-misc with box 7 representing that 10k. I am having a difficult time understanding why we are paying self-employment taxes on this income when it wasn’t for a business, employment, etc..
Hi Joe,
When H&R Block tells you that you may deduct training as a business expense, you deduct the cost of what you pay for the training, not what you got paid for training. For example: I just paid $79 for a class on the new 2018 tax law. I paid $79 so I can write it off as a deduction. Your in the opposite situation, you were paid to take the training. So that’s not a deduction for you so you have to report that income.
Now – let’s see what we can write off instead! Just some thoughts, it sounds like they also reimbursed you for your travel – so you won’t be able to deduct the travel as it was reimbursed as well. Did they reimburse your food also? Because then you could claim the meal expense. (I know, not big, but let’s take whatever we can get.)
But, why are you taking training? It’s for you position as shop steward right? I’m guessing that your regular job is a W2 position, and the shop steward gig is for the union which is a separate entity. So, you got paid by the union. You are a shop steward for the union. So let’s look at your shop steward expenses. Now we’re opening up your potential expenses, see? As the shop steward, you must attend the meetings. So you may have mileage expense from your job to the union hall. Maybe you have some meal and entertainment expenses from your union activities.
Normally, I put union dues and union expenses as an “employee business expense” on form 2106. (It doesn’t always wind up being deductible because of all the other constraints, but that’s normally where I put it.) But since the union chose to issue you a 1099MISC – that makes you a contract laborer for the union and it opens things up a bit. I would not write off all of your union dues on your schedule C – but I would claim a small portion of it there.
Ok, I have a question. I was a local steward in my union last year. I received a 1099 MISC with an amount in Box 7. However the total amount was for my 4 days of training. I had two extra days of training because they were training me to go to the next level. The amount is 1084. Online through HR Block it says that I can deduct training, since I got paid for training (the amount doesn’t include travel reimbursement), can I deduct the whole thing? Or would I be better off claiming it then do an amendment?
Hi Ray,
I’m going to bail on you and tell you to get an attorney. You’re playing with too much money to take a risk. I know that if SSDI believes that you are earning that money, then your benefits are toast. And if you are disabled, you’re going to want your SSDI benifits later – I’m guessing the insurance commissions will eventually run out.
My gut says that you should re-open the estate, but like I said this is out of my league. I wouldn’t be so worried if it weren’t for the SSDI. Once you pay self-employment tax – that seems to me like you’re opening a can of worms.
I did a little research and found something where you wouldn’t pay self-employment tax – but then I did a little more research and that regulation appeared to have been repealed. That’s one of the tax law problems, you can find regulations – but finding the most up to date one. And – which years did you receive the income? I interpret the instructions for issuing 1099s to read that the insurance commissions should go in box 3 of the 1099 instead of box 7 – but that’s my interpretation. (Box 3 would be other income, not self-employment income.)
But that’s just me wondering about stuff. I’m not an expert here, and you need an expert. It’s important for you to protect your SSDI. It’s not just the payments, it’s the insurance too. Sorry I’m not more help.
Hi,
So my father died in 2006. After a long battle the estate closed. A couple of years later income from his insurance business showed up. It’s several hundred thousand I’ve the last few years. It’s all from one of his clients who keeps buying insurance and just grew from a two man shop to over 50 employees. I’m on SSDI and they want me to amend my tax return so that it shows I’m not self employed but inheriting. The IRS wants self employment taxes my father would have paid since it’s continuing income. I’ve been told I can file on line 21 and pay the se taxes but consider the income as other for SSDI purposes since they’re his se taxes, not mine. Sound right? They want me to amend my 14-16 returns to reflect no se or pay back $60k in benefits. The estate is long ago closed so no way to go back and include it or put it in a trust. There’s no business, just a handful of policies that generate commission income.