Misc Income [how to report with no 1099]

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feehater
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Re: Misc Income [how to report with no 1099]

Post by feehater » Fri Feb 23, 2018 10:09 am

Maybe she didn't want to pay her half of the payroll taxes but thought it sounded less stingy to blame it on the worker's comp policy?

Either way, it seems that most of us are at least in agreement that it needs to be reported somewhere! Leaving your 1040 as is seems like you have underreported your income which is not only illegal but i think opens you up to 7 years for an audit as opposed to the usual 3.

spectec
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Re: Misc Income [how to report with no 1099]

Post by spectec » Fri Feb 23, 2018 10:21 am

I agree with MarkNYC and tomd37 (of course I never disagree with MarkNYC anyhow, 'cause he knows his stuff).
Report on line 21, no S/E tax due.

If you want to find out more about this, you might want to look up "Batok vs Commisioner" to get the full story on why experienced tax pros take this position. There are other cases, but this one is the usual go-to.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Fri Feb 23, 2018 10:39 am

The 1040 instructions p. 22 say that if you didn’t receive a W-2 (despite your efforts to do so) then the income belongs on line 7 https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
Missing or Incorrect Form W-2?
Your employer is required to provide or send Form W-2 to you no later than January 31, 2018. If you don’t receive it
by early February, use Tax Topic 154 (quoted in an earlier post) to find out what to do. Even if you don’t get a Form W-2, you still must report your earnings on line 7. If you lose your Form W-2 or it is incorrect, ask your employer for a new one.
So those who know, could you please tell us why OP should not to follow these instructions, and instead should go by a court case?

pshonore
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Re: Misc Income [how to report with no 1099]

Post by pshonore » Fri Feb 23, 2018 10:50 am

harmony wrote:
Fri Feb 23, 2018 10:39 am
The 1040 instructions p. 22 say that if you didn’t receive a W-2 (despite your efforts to do so) then the income belongs on line 7 https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
Missing or Incorrect Form W-2?
Your employer is required to provide or send Form W-2 to you no later than January 31, 2018. If you don’t receive it
by early February, use Tax Topic 154 (quoted in an earlier post) to find out what to do. Even if you don’t get a Form W-2, you still must report your earnings on line 7. If you lose your Form W-2 or it is incorrect, ask your employer for a new one.
So those who know, could you please tell us why OP should not to follow these instructions, and instead should go by a court case?
I doubt there is universal agreement that he is an "employee".

harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Fri Feb 23, 2018 11:01 am

So OP, if you don't mind, please come back and tell us if you think you were an employee or an independent contractor.
I posted a link to a checklist earlier in this thread. Where do you think your work fit?

And for those who are the tax pros, is there a third option, neither employee, nor independent contractor? Then what else?

michaeljc70
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Re: Misc Income [how to report with no 1099]

Post by michaeljc70 » Fri Feb 23, 2018 11:32 am

harmony wrote:
Mon Feb 19, 2018 3:20 pm
Instead of OP paying all of the FICA taxes as if he was self-employed, I’d recommend he ask the employer to pay this as she should have done. There is time yet before the end of February apparently. If she has other employees she would know this requirement.
Topic Number 154 - Form W-2 and Form 1099-R (What to Do if Incorrect or Not Received)
If your Form W-2.pdf, Wage and Tax Statement, and/or Form 1099-R.pdf, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., aren't available to you by January 31, 2018, or if your information is incorrect on these forms, contact your employer/payer. If by the end of February you still haven't received the missing or corrected form, you may call the IRS at 800-829-1040 for assistance . . .
The employer shouldn't pay FICA taxes as OP wasn't an employee. It was for a week. There are a lot of other issues with going that route (Worker's comp, unemployment, head taxes, etc.) for the employer.

As others have stated, it goes on Sched C.

You could open and contribute to a SEP IRA (or other SE retirement plan) and eliminate some of the taxes. The amount is probably too low to bother with though. An SE401k would allow you to contribute almost all of the $1200. The paperwork involved though for this one time thing might not make it worthwhile.

harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Fri Feb 23, 2018 11:48 am

Previously posted: See also p. 25 of Publication 15 (Circular E), Employer's Tax Guide https://www.irs.gov/pub/irs-pdf/p15.pdf
Part-Time Workers
Part-time workers and workers hired for short periods of time are treated the same as full-time employees, for federal income tax withholding and social security, Medicare, and FUTA tax purposes.

spectec
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Re: Misc Income [how to report with no 1099]

Post by spectec » Fri Feb 23, 2018 12:15 pm

This entire thread illustrates to me that, although much of the tax code is easy to understand, there are times when someone not thoroughly familiar with both the letter of the code and the practical aspects can get tripped up. What the tax code says, the case law often alters. But most people think about these matters in a linear manner and therefore miss the nuance (if there is one). This isn't a criticism - just an observation.

In this case not much is at stake, but there are times when taxpayers confronted with unusual situations make huge, costly mistakes. I know because I've seen it many times.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Fri Feb 23, 2018 12:38 pm

When OP receives a 1099-MISC for this income, it will come with these instructions:
Box 7.
Shows nonemployee compensation. . . If you believe you are an employee and cannot get the payer to correct this form, report the amount from box 7 on Form 1040, line 7 . . .
So do the pros believe that it would not be "practical" to follow these instructions?

michaeljc70
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Re: Misc Income [how to report with no 1099]

Post by michaeljc70 » Fri Feb 23, 2018 12:55 pm

harmony wrote:
Fri Feb 23, 2018 12:38 pm
When OP receives a 1099-MISC for this income, it will come with these instructions:
Box 7.
Shows nonemployee compensation. . . If you believe you are an employee and cannot get the payer to correct this form, report the amount from box 7 on Form 1040, line 7 . . .
So do the pros believe that it would not be "practical" to follow these instructions?
You left off "You must also complete Form 8919 and attach it to your return."

Why does the OP believe they are an employee? People almost never hire an employee for a weeks worth of work.

You can also file a Form SS-8 and the IRS will determine if you are an employee.

I think for this amount of money, I would file the Sched C. You are talking 15.4%*1200= $184. I am not sure of your relationship with the person you did work for, but anything else is going to create a hassle for one or both of you. Someone is going to wind up paying the payroll taxes.

armeliusc
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Re: Misc Income [how to report with no 1099]

Post by armeliusc » Fri Feb 23, 2018 1:02 pm

The "tax hit" that OP refers to is not that much anyway. Regardless how it's reported, it has to be reported somehow so the 15% of $1200 tax is fixed.

- If reported as Misc Income: no extra SE tax
- If OP had been an employee with W2: add the FICA employee portion (which should have been withheld): 7.625% x $1200 = +$91.8
- if reported in Sched C (-EZ): add the FICA employer portion but deductible: (7.625% x $1200) - (15% x (7.65% x 1200)) = +$78.03

So between being W2 and Sched C with 1099, the difference is really 'only' $78.

pshonore
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Re: Misc Income [how to report with no 1099]

Post by pshonore » Fri Feb 23, 2018 1:07 pm

michaeljc70 wrote:
Fri Feb 23, 2018 11:32 am
harmony wrote:
Mon Feb 19, 2018 3:20 pm
Instead of OP paying all of the FICA taxes as if he was self-employed, I’d recommend he ask the employer to pay this as she should have done. There is time yet before the end of February apparently. If she has other employees she would know this requirement.
Topic Number 154 - Form W-2 and Form 1099-R (What to Do if Incorrect or Not Received)
If your Form W-2.pdf, Wage and Tax Statement, and/or Form 1099-R.pdf, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., aren't available to you by January 31, 2018, or if your information is incorrect on these forms, contact your employer/payer. If by the end of February you still haven't received the missing or corrected form, you may call the IRS at 800-829-1040 for assistance . . .
The employer shouldn't pay FICA taxes as OP wasn't an employee. It was for a week. There are a lot of other issues with going that route (Worker's comp, unemployment, head taxes, etc.) for the employer.

As others have stated, it goes on Sched C.

You could open and contribute to a SEP IRA (or other SE retirement plan) and eliminate some of the taxes. The amount is probably too low to bother with though. An SE401k would allow you to contribute almost all of the $1200. The paperwork involved though for this one time thing might not make it worthwhile.
Don't think you can contribute to a SEP or S401K without earned income. Believe you have to pay FICA on it to be considered earned income.

pshonore
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Re: Misc Income [how to report with no 1099]

Post by pshonore » Fri Feb 23, 2018 1:11 pm

michaeljc70 wrote:
Fri Feb 23, 2018 12:55 pm
harmony wrote:
Fri Feb 23, 2018 12:38 pm
When OP receives a 1099-MISC for this income, it will come with these instructions:
Box 7.
Shows nonemployee compensation. . . If you believe you are an employee and cannot get the payer to correct this form, report the amount from box 7 on Form 1040, line 7 . . .
So do the pros believe that it would not be "practical" to follow these instructions?
You left off "You must also complete Form 8919 and attach it to your return."

Why does the OP believe they are an employee? People almost never hire an employee for a weeks worth of work.

You can also file a Form SS-8 and the IRS will determine if you are an employee.

I think for this amount of money, I would file the Sched C. You are talking 15.4%*1200= $184. I am not sure of your relationship with the person you did work for, but anything else is going to create a hassle for one or both of you. Someone is going to wind up paying the payroll taxes.
Its even less than that - Check out IRS Form SE.

michaeljc70
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Re: Misc Income [how to report with no 1099]

Post by michaeljc70 » Fri Feb 23, 2018 1:17 pm

pshonore wrote:
Fri Feb 23, 2018 1:07 pm
michaeljc70 wrote:
Fri Feb 23, 2018 11:32 am
harmony wrote:
Mon Feb 19, 2018 3:20 pm
Instead of OP paying all of the FICA taxes as if he was self-employed, I’d recommend he ask the employer to pay this as she should have done. There is time yet before the end of February apparently. If she has other employees she would know this requirement.
Topic Number 154 - Form W-2 and Form 1099-R (What to Do if Incorrect or Not Received)
If your Form W-2.pdf, Wage and Tax Statement, and/or Form 1099-R.pdf, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., aren't available to you by January 31, 2018, or if your information is incorrect on these forms, contact your employer/payer. If by the end of February you still haven't received the missing or corrected form, you may call the IRS at 800-829-1040 for assistance . . .
The employer shouldn't pay FICA taxes as OP wasn't an employee. It was for a week. There are a lot of other issues with going that route (Worker's comp, unemployment, head taxes, etc.) for the employer.

As others have stated, it goes on Sched C.

You could open and contribute to a SEP IRA (or other SE retirement plan) and eliminate some of the taxes. The amount is probably too low to bother with though. An SE401k would allow you to contribute almost all of the $1200. The paperwork involved though for this one time thing might not make it worthwhile.
Don't think you can contribute to a SEP or S401K without earned income. Believe you have to pay FICA on it to be considered earned income.
If they file Sched C, they will pay FICA on it.

michaeljc70
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Re: Misc Income [how to report with no 1099]

Post by michaeljc70 » Fri Feb 23, 2018 1:21 pm

pshonore wrote:
Fri Feb 23, 2018 1:11 pm
michaeljc70 wrote:
Fri Feb 23, 2018 12:55 pm
harmony wrote:
Fri Feb 23, 2018 12:38 pm
When OP receives a 1099-MISC for this income, it will come with these instructions:
Box 7.
Shows nonemployee compensation. . . If you believe you are an employee and cannot get the payer to correct this form, report the amount from box 7 on Form 1040, line 7 . . .
So do the pros believe that it would not be "practical" to follow these instructions?
You left off "You must also complete Form 8919 and attach it to your return."

Why does the OP believe they are an employee? People almost never hire an employee for a weeks worth of work.

You can also file a Form SS-8 and the IRS will determine if you are an employee.

I think for this amount of money, I would file the Sched C. You are talking 15.4%*1200= $184. I am not sure of your relationship with the person you did work for, but anything else is going to create a hassle for one or both of you. Someone is going to wind up paying the payroll taxes.
Its even less than that - Check out IRS Form SE.
You do get to deduct part of that....but I was keeping it simple.

pshonore
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Re: Misc Income [how to report with no 1099]

Post by pshonore » Fri Feb 23, 2018 1:32 pm

michaeljc70 wrote:
Fri Feb 23, 2018 1:21 pm
pshonore wrote:
Fri Feb 23, 2018 1:11 pm
michaeljc70 wrote:
Fri Feb 23, 2018 12:55 pm
harmony wrote:
Fri Feb 23, 2018 12:38 pm
When OP receives a 1099-MISC for this income, it will come with these instructions:
Box 7.
Shows nonemployee compensation. . . If you believe you are an employee and cannot get the payer to correct this form, report the amount from box 7 on Form 1040, line 7 . . .
So do the pros believe that it would not be "practical" to follow these instructions?
You left off "You must also complete Form 8919 and attach it to your return."

Why does the OP believe they are an employee? People almost never hire an employee for a weeks worth of work.

You can also file a Form SS-8 and the IRS will determine if you are an employee.

I think for this amount of money, I would file the Sched C. You are talking 15.4%*1200= $184. I am not sure of your relationship with the person you did work for, but anything else is going to create a hassle for one or both of you. Someone is going to wind up paying the payroll taxes.
Its even less than that - Check out IRS Form SE.
You do get to deduct part of that....but I was keeping it simple.
Actually the calculation is .9235 of earned income X .153 = $170 and yes you do get to deduct 1/2 from AGI

harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Fri Feb 23, 2018 2:11 pm

Let’s think of this more from the OP’s perspective and less from the business owner’s perspective. If OP continues doing these short-term periods of work for this business person (as OP indicated upthread he is interested in doing) and she doesn’t provide Worker’s Compensation Insurance, then he is not covered for any liability at work. If he gets a signed contract from the owner, the providers of IC liability insurance will scrutinize it for legitimacy against their company’s fine print. Plus OP keeps paying all the FICA. She expects him to accept a 1099-MISC but he may not qualify under sited IRS regulations as an independent contractor, so he is left with filing a shadowy Schedule C for as long as this continues. This arrangement is not practical for every party involved.

michaeljc70
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Re: Misc Income [how to report with no 1099]

Post by michaeljc70 » Fri Feb 23, 2018 2:49 pm

arcticpineapplecorp. wrote:
Mon Feb 19, 2018 9:27 pm
I don't think it's miscellaneous income. In fact in order to get turbotax to count it as miscellaneous and not as self-employment you have to specifically answer the following two questions:
Select No, it didn’t involve work….. and Continue.
Select No, it didn’t involve an intent to earn money, then Continue.
source: https://ttlc.intuit.com/questions/3862819
Since it DID involve work and it DID involve an intent to earn money, I don't see how it can possibly be listed under line 21 miscellaneous income.

I suppose in the future if you want to do any work for someone maybe you should be upfront and make sure they're going to issue a W-2 (instead of a 1099-misc as non-employee compensation) and take the appropriate taxes out so you don't have to pay them yourself.
I agree. She didn't volunteer. She did work at a for profit business and was paid for that work.

She may get away with it, but it is not proper (it is income from work and no payroll taxes were paid) and I wouldn't do it myself.

spectec
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Re: Misc Income [how to report with no 1099]

Post by spectec » Fri Feb 23, 2018 3:16 pm

OK, I'll go ahead and say it since none other other tax pros have responded yet to all those who keep quoting the instructions and publications. The instructions are not the Internal Revenue Code. The publications are not the Internal Revenue Code. The instructions and pubs are IRS's interpretation of the Internal Revenue Code. They are general in nature and tend to apply in most situations. But there are often exceptions, which can only be determined by studying court cases, Internal Revenue Bulletins, and numerous other sources of information to apply to the facts & circumstances of any particular situation.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Fri Feb 23, 2018 4:02 pm

If I am following, at least three tax pros here are recommending to put this 1099-MISC on line 21 and wait for correspondence from the IRS, then decide what to do. That’s still a hassle every year. If OP goes for Line 7, this won’t be happening year after year. Sure, this business person may not hire him again, but this isn’t his only job. Or since this person is his neighbor, if he wants to keep the peace, consider working as a temp through an agency. If she values his work, it could take some HR burdens off of her. Win-Win.

spectec
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Re: Misc Income [how to report with no 1099]

Post by spectec » Fri Feb 23, 2018 5:10 pm

OP said " ...I helped out a neighbor at her business for a week while her associate was away."

That's all in the past tense.
What leads you to the conclusion that this is an ongoing activity that's going to come up every year?
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Fri Feb 23, 2018 5:17 pm

^because on Wednesday OP posted this:
However, I have asked my neighbor to talk to her accounting about making me a part-time employee since she has asked if I could fill-in in the future...

spectec
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Re: Misc Income [how to report with no 1099]

Post by spectec » Fri Feb 23, 2018 5:44 pm

That's an issue for next year...
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Fri Feb 23, 2018 6:01 pm

This year sets a precedent and the likely expectation on the part of the business owner of the continuance of the status quo going forward. It depends whether the OP still wants to work with this person and under what presumptions. Do line 21 this year and that's what the business owner will expect next year. Do line 7, or ask to be a temp agency worker, and the OP maintains his rights.

michaeljc70
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Re: Misc Income [how to report with no 1099]

Post by michaeljc70 » Fri Feb 23, 2018 6:34 pm

harmony wrote:
Fri Feb 23, 2018 6:01 pm
This year sets a precedent and the likely expectation on the part of the business owner of the continuance of the status quo going forward. It depends whether the OP still wants to work with this person and under what presumptions. Do line 21 this year and that's what the business owner will expect next year. Do line 7, or ask to be a temp agency worker, and the OP maintains his rights.
I still contend it belongs on line 12 and they need to file a Schedule C and SE.

If the neighbor has no other employees, setting up one employee for one week of work would be a ridiculous amount of work (calculating and submitting withholdings, dealing with state and local laws, etc.). I assume this person wants to remain friendly with the business owner.

Line 21 is for things like prizes, awards, jury duty, gambling winnings, etc. It is not for work income!

Putting it on line 7 without a W2 or agreement that they were an employee isn't something I'd do either.

I'm really not sure what the aversion is to the Sched C/SE. I've been a contractor for 25 years and do it all the time. I realize there has been a crackdown on companies calling people contractors to save money when they are really employees, but not for 1 week of work and $1200.

harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Fri Feb 23, 2018 7:31 pm

If FICA compliance is too much, then in the future, the business owner should go through a temp agency and have them do the HR work. It’s not just one week of work in principle because the business owner has already asked the OP to be a fill-in in the future. OP can do whatever he wants this year, but keep in mind it may not be easy to get this business owner to change when she is already blaming her own lack of compliance for FICA withholding on the cost of Worker’s Compensation Insurance. I hope we aren't giving tacit approval of this. OP doesn't need to take on IRS scrutiny because of his employer's negligence. Schedule C opens that up.

michaeljc70
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Re: Misc Income [how to report with no 1099]

Post by michaeljc70 » Fri Feb 23, 2018 8:11 pm

harmony wrote:
Fri Feb 23, 2018 7:31 pm
If FICA compliance is too much, then in the future, the business owner should go through a temp agency and have them do the HR work. It’s not just one week of work in principle because the business owner has already asked the OP to be a fill-in in the future. OP can do whatever he wants this year, but keep in mind it may not be easy to get this business owner to change when she is already blaming her own lack of compliance for FICA withholding on the cost of Worker’s Compensation Insurance. I hope we aren't giving tacit approval of this. OP doesn't need to take on IRS scrutiny because of his employer's negligence. Schedule C opens that up.
I don't get this. Can you elaborate? If anyone got scrutiny, it would be the employer. And not over 1 week and $1200.

harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Fri Feb 23, 2018 8:31 pm

^If OP follows the instructions for filling out Schedule C, he will be instructed to claim his expenses. When he does this the IRS may well take an interest. In the court case referenced above, the person tried to claim some expenses against his low income. This got the IRS’ attention. Why should OP have any concern for keeping out of the IRS’ crosshairs? This is the business owner’s responsibility as you correctly assert. OP shouldn’t need to protect the business owner and himself by very carefully avoiding entering anything (expenses?) anywhere on his tax return which would draw the IRS’ attention to the laws being ignored by the business owner.

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FiveK
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Re: Misc Income [how to report with no 1099]

Post by FiveK » Fri Feb 23, 2018 8:38 pm

spectec wrote:
Fri Feb 23, 2018 10:21 am
If you want to find out more about this, you might want to look up "Batok v. Commissioner"....
Thanks for that.

For those who haven't delved there, T.C. Memo 1992-727 (T.C. 1992) - TC_Memo_1992-727.pdf includes
Section 1402(a) defines "net earnings from self-employment" subject to tax to mean "the gross income derived by an individual from any trade or business carried on by such individual...."
And COMMISSIONER OF INTERNAL REVENUE, Petitioner v. Robert P. GROETZINGER includes
We accept the fact that to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify.
To go further down the rabbit hole, one might attempt to define "sporadic", etc., but "one time for one week" would seem to fit most such definitions.

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CollegePrudens
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Re: Misc Income [how to report with no 1099]

Post by CollegePrudens » Sat Feb 24, 2018 11:05 am

Interesting discussion.

I wonder what you would say to the following situation (my own):
  • W-2 employee in 2017
  • Received 1099-MISC from a local university for a teaching assignment at a new program. The amount was ~1% of the gross W-2 income and in the same subject area as the W-2 job. I.e. the job requires me to do X. And I teach students to do X when the opportunity arises.
  • The teaching job was for a 2 hour block in one week and a 4 hour block two weeks later. The program was new in 2017 but is expected to be semi annual 2018 onwards. (There is some chance that the program may stop altogether.)
  • In 2018, the same pattern is likely to repeat (i.e. my involvement with teaching is likely to continue)
  • 2017 1099-MISC income was designated "non-employee compensation" by the university
  • 2017 taxes have been filed with a schedule C filled out for expenses incurred
[My apologies for this slight tangent. Having thought about this topic recently as I filed my 2017 returns, I thought it would be useful to compare the situations.]
FiveK wrote:
Fri Feb 23, 2018 8:38 pm
spectec wrote:
Fri Feb 23, 2018 10:21 am
If you want to find out more about this, you might want to look up "Batok v. Commissioner"....
Thanks for that.

For those who haven't delved there, T.C. Memo 1992-727 (T.C. 1992) - TC_Memo_1992-727.pdf includes
Section 1402(a) defines "net earnings from self-employment" subject to tax to mean "the gross income derived by an individual from any trade or business carried on by such individual...."
And COMMISSIONER OF INTERNAL REVENUE, Petitioner v. Robert P. GROETZINGER includes
We accept the fact that to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify.
To go further down the rabbit hole, one might attempt to define "sporadic", etc., but "one time for one week" would seem to fit most such definitions.
Live as if you were to die tomorrow; learn as if you were to live forever - Gandhi

michaeljc70
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Re: Misc Income [how to report with no 1099]

Post by michaeljc70 » Sat Feb 24, 2018 11:21 am

FiveK wrote:
Fri Feb 23, 2018 8:38 pm

And COMMISSIONER OF INTERNAL REVENUE, Petitioner v. Robert P. GROETZINGER includes
We accept the fact that to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify.
To go further down the rabbit hole, one might attempt to define "sporadic", etc., but "one time for one week" would seem to fit most such definitions.
I find it hard to believe that if I work sporadically that I can avoid paying payroll taxes. If that is the case, I've worked on and off doing contracting for the last 20+ years....sporadically. I could have saved 6 figures in payroll taxes.

If you read the entire case, there is much more involved and it is about a gambler betting on dog races around 40 years ago (tax law has changed in 40 years).

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FiveK
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Re: Misc Income [how to report with no 1099]

Post by FiveK » Sat Feb 24, 2018 12:13 pm

michaeljc70 wrote:
Sat Feb 24, 2018 11:21 am
If you read the entire case, there is much more involved and it is about a gambler betting on dog races around 40 years ago (tax law has changed in 40 years).
Note that in these and other cases the IRS is saying "this is not business income" because, when it is business income, one gets to deduct business expenses even if that produces a loss.

That sword cuts both ways.

harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Sat Feb 24, 2018 2:21 pm

With all due apologies/gratitude to the OP, I will try to respond quickly to CollegePrudens.

If your W-2 job and 1099-MISC are from the same univeristy, then I’d certainly question the reason for a separate 1099. If your W-2 and 1099 came from different sources and you believe you do not meet the definition of an independent contractor (checklist posted upthread) this is also reason to question. They may have a good answer. If they don't, it will be easier for them to correct this now.

Here’s a link to an adjunct professor’s case.
He wrote a letter to the HR department asking for clarification of his work status. University HR departments have ready access to legal resources to help them get this right. Read how the payroll manager made the decision based on legal precedent. I am not suggesting your situation is the same. I just want to highlight steps that another instructor took to resolve his issue. If you ask questions as soon as you have them, you have a better chance of getting your relevant facts to HR before precedence takes hold. If questions linger through multiple tax years first, you have more past history to uncover and make right. (Don’t ask me how I know.)

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CollegePrudens
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Re: Misc Income [how to report with no 1099]

Post by CollegePrudens » Sat Feb 24, 2018 5:57 pm

harmony wrote:
Sat Feb 24, 2018 2:21 pm
If your W-2 job and 1099-MISC are from the same univeristy, then I’d certainly question the reason for a separate 1099. If your W-2 and 1099 came from different sources and you believe you do not meet the definition of an independent contractor (checklist posted upthread) this is also reason to question.
Thanks for taking a look Harmony.

My W-2 job is in the industry. Only the 1099-MISC is from the University.

From prior correspondence with the University, they think of it is as a "honorarium". The bulk of the actual work for the 1099-MISC is done on my time but the payment is for per hour of teaching.

I looked at the checklist and several questions are difficult to apply to my situation. However, I do believe that I meet the definition of an independent contractor (although the University has surprisingly not asked me to sign a contract yet). The University personnel told me upfront that they will issue a 1099-MISC and it was understood that I would not be eligible for any benefits through the University.
Last edited by CollegePrudens on Sat Feb 24, 2018 9:40 pm, edited 1 time in total.
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harmony
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Re: Misc Income [how to report with no 1099]

Post by harmony » Sat Feb 24, 2018 6:25 pm

Well at least they gave you the information upfront so you could look it up for yourself and plan for it.
https://www.investopedia.com/terms/h/honorarium.asp
Maybe you had to pay self-employment taxes, but you could deduct your expenses. (Not asking, though.)

An independent contractor usually draws up the contract and has the client sign off. Maybe it's different for an honorarium.

Katietsu
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Re: Misc Income [how to report with no 1099]

Post by Katietsu » Sat Feb 24, 2018 10:08 pm

MarkNYC wrote:
Fri Feb 23, 2018 10:02 am
For those convinced that a Schedule C is required, I suggest they re-read the bolded section of the post above by tomd37, where he quotes the IRS instructions: Use Schedule C... for a business you operated or profession your practiced...the activity qualifies as a business if the taxpayer is involved in the activity with continuity and regularity...a sporadic activity does not qualify as a business.

This fill-in work done by the OP may have been a brief one-time thing, thus not qualifying as a business to be reported on Schedule C and not subject to Self-Employment tax, in which case the income is properly reported on line 21.

If the payer issues a 1099-MISC for "nonemployee compensation" the IRS will be looking for SE tax, but that does not mean the taxpayer legitimately owes it. The line 21 income should include a statement explaining why the income is not subject to SE tax, despite the 1099 coding. This may result in IRS correspondence so the taxpayer must then decide, based on the dollars involved, if reporting the income correctly on line 21 is worth the potential time and trouble of corresponding with IRS.

The IRS will not object to reporting the income on Schedule C, even if it doesn't belong there.
Anyone who wants to understand this confusing topic should read this explanation by MarkNYC.

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Re: Misc Income [how to report with no 1099]

Post by michaeljc70 » Sat Feb 24, 2018 10:35 pm

Katietsu wrote:
Sat Feb 24, 2018 10:08 pm
MarkNYC wrote:
Fri Feb 23, 2018 10:02 am
For those convinced that a Schedule C is required, I suggest they re-read the bolded section of the post above by tomd37, where he quotes the IRS instructions: Use Schedule C... for a business you operated or profession your practiced...the activity qualifies as a business if the taxpayer is involved in the activity with continuity and regularity...a sporadic activity does not qualify as a business.

This fill-in work done by the OP may have been a brief one-time thing, thus not qualifying as a business to be reported on Schedule C and not subject to Self-Employment tax, in which case the income is properly reported on line 21.

If the payer issues a 1099-MISC for "nonemployee compensation" the IRS will be looking for SE tax, but that does not mean the taxpayer legitimately owes it. The line 21 income should include a statement explaining why the income is not subject to SE tax, despite the 1099 coding. This may result in IRS correspondence so the taxpayer must then decide, based on the dollars involved, if reporting the income correctly on line 21 is worth the potential time and trouble of corresponding with IRS.

The IRS will not object to reporting the income on Schedule C, even if it doesn't belong there.
Anyone who wants to understand this confusing topic should read this explanation by MarkNYC.
Yet that leaves out an essential part of the instructions:

An activity qualifies as a business if
your primary purpose for engaging in the activity is for income or profit and you are
involved in the activity with continuity and regularity. For example, a sporadic activity
or a hobby does not qualify as a business. To report income from a nonbusiness activity,
see the instructions for Form 1040, line 21, or Form 1040NR, line 21.

Also use Schedule C to report (a) wages and expenses you had as a statutory employee,
(b) income and deductions of certain qualified joint ventures, and (c) certain
income shown on Form 1099-MISC, Miscellaneous Income.


I hate to keep repeating myself, but the OP should report it on Sched C. It is the best option. Who wants to get letters and/or penalties from the IRS or fight with their neighbor over $100 or so dollars????

lotusflower
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Re: Misc Income [how to report with no 1099]

Post by lotusflower » Tue Feb 27, 2018 1:27 pm

I am an engineer, not an accountant or other tax professional, but I have been on the giving and receiving ends of 1099s for the last 25 years. I can certainly verify that once a business turns in a 1099-MISC for a contractor, there is no response or verification from the IRS.

I'm pretty sure the IRS use 1099s to find contractor tax cheats and get the income+payrolltax+FICA out of them, but I'm quite sure they can't line it up to the penny. If a company cuts you a check on Dec 29 and you receive it and deposit it on Jan 5, you can declare the income in a different year than the 1099 will be for, and I'm sure the IRS has no way to really match that up for people who receive several 1099s. They are just looking for gross mismatches. All that is just my opinion but I don't see how anything else is possible given all the edge cases that are possible. $1200 is not going to make a difference but it should still be reported. I think michaeljc70 seems to have it right, that's certainly how I would do it.

The twenty questions for independent contractors are important but violations are much riskier for the business than the contractor. Contractors have signed forms that they were indeed contractors (and got paid more for it) and then sued the businesses for actually being employees after all and got extra benefits paid and extra back taxes for the employer. The 20 questions are somewhat vague, and as long as the work is very intermittent your neighbor is sensible to pay you as a 1099, though it would have been nice for her to point out that that is taxed at a higher rate, and it would be very smart to put the 1099 relationship in writing even though it doesn't really protect her from violating the 20 questions and the tax liability she could face if the OP were reclassified as a W-2 employee. None of which is going to happen over $1200, but if the work becomes more regular the business owner will be smart to convert OP to a W-2.

As far as workmans comp, I guess that depends how risky the work is. If it's office work and the OP is concerned about a debilitating paper cut that leaves her unable to work, than 1099/Sched C is a bad way to go, but for occasional, non-strenuous work I don't think a lack of WC coverage is putting the OP at risk.

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