If you receive a 1099-NEC with income in Box 1 that is for nonemployee compensation, the IRS requires that this income be reported on a Schedule C.
Why did I get a 1099-NEC instead of a W-2?
When you earn money by performing work, that income is usually subject to social security and Medicare taxes. Usually, when you work for a company, you are their employee. As their employee, you only have to pay half of these taxes while your employer pays the other half.
If you received a 1099-NEC with the amount of the income in Box 1, Nonemployee Compensation, the person or company who issued the form did not consider you an employee*. Because of this, they did not withhold any of your applicable social security or Medicare taxes. When this is the case, you generally will have to pay the full amount of these taxes (rather than just half) and include this on your federal income tax return (Schedule SE). When you report the income on a Schedule C, the program will automatically calculate your self-employment taxes for you.
How do I report the 1099-NEC or 1099-K?
If you are filing a 1099-NEC with income in Box 1, you will be prompted to add the income to an existing Schedule C or create a new Schedule C after completing the 1099-NEC entry.
If you receive a 1099-K, the IRS requires this income to be reported as income on the Schedule C. For more information about the 1099-K, please click here.
To complete a Schedule C within the program, go to:
- Federal Section
- Profit or Loss From a Business
When completing the Schedule C, you are only required to include an appropriate business code and description in the Basic Business Information section. You do not need a business name or EIN.
Incorrectly reporting this income
If you were to just report the income as "Other Income", these additional taxes would not calculate correctly. When the IRS reviews your return later in the year, they would find that you did not report this correctly and you would have to not only pay the self-employment taxes, but you would end up owing penalties and interest.
If you believe you are an employee of the person or company that issued you the Form 1099-NEC, you would need to contact them directly to get this corrected.
For more information on the Schedule C, please click here