[H&R Block] and TurboTax Handle 1099MISC Differently

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itsgot8
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[H&R Block] and TurboTax Handle 1099MISC Differently

Post by itsgot8 » Fri Feb 22, 2019 12:19 pm

Looking for a little guidance here.

I'm running TurboTax Deluxe and when entering the DW's 1099-MISC for some small contract work she did for her previously employer, TurboTax reduces our federal refund by $600. This made no sense to me because she only earned approximately $1500 over a four month period and this small bit of income did not push us into a higher tax bracket. It seemed unreasonable that we would have to pay $600 in tax on that $1500 income. I wanted to verify this, so I entered our information into H&R Block's calculator and the income from the 1099-MISC didn't impact our return at all. Of course, that can't be right either.

I'm also confused because according to the IRS, Schedule C is only required if someone earned money with continuity and regularity. The DW only earned this money over a four month period, so I'm not even sure if that meets the Schedule C guidelines yet TurboTax is forcing me to fill it out.

What do the knowledgeable experts in this community recommend as some action items?

AHTFY
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Re: HRB and TurboTax Handle 1099MISC Differently

Post by AHTFY » Fri Feb 22, 2019 12:38 pm

It's hard to say without knowing more, but two things come to mind.

1) You'll have to pay the self-employment tax on that income (15.3%) plus whatever your marginal income tax rate is. If your marginal tax rate is 24%, your total tax on that $1,500 would be about $600.

2) It's possible this extra income results in a loss of a credit or deduction.

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itsgot8
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Re: HRB and TurboTax Handle 1099MISC Differently

Post by itsgot8 » Fri Feb 22, 2019 12:58 pm

AHTFY wrote:
Fri Feb 22, 2019 12:38 pm
It's hard to say without knowing more, but two things come to mind.

1) You'll have to pay the self-employment tax on that income (15.3%) plus whatever your marginal income tax rate is. If your marginal tax rate is 24%, your total tax on that $1,500 would be about $600.

2) It's possible this extra income results in a loss of a credit or deduction.
Well, that might be it then. MFJ, our taxable income bracket is 22%. I'll have another go at the numbers. Thank you for your input.

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desertbandit442
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Re: HRB and TurboTax Handle 1099MISC Differently

Post by desertbandit442 » Sat Feb 23, 2019 8:35 pm

IRS has cracked down on 1099-MISC income if it is reported in Box 7. Box 7, non-employee compensation requires a Schedule C for Self-Employment income 99.8% of the time. If your wife did the work over a four month period, then it is regular and continuous for that four month period and is thus subject to self-employment tax. About the only time Box 7 income wouldn’t require a Schedule C if they did a job, like cleared a lot over a weekend and the person/business issued them a 1099-MISC for that job and they did no other work like that (landscaping) during any other time in the year. If you don’t report your 1099-MISC Box 7 on a Schedule C, you will most likely get an IRS letter for self-employment taxes.

pshonore
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Re: HRB and TurboTax Handle 1099MISC Differently

Post by pshonore » Sun Feb 24, 2019 10:04 am

desertbandit442 wrote:
Sat Feb 23, 2019 8:35 pm
IRS has cracked down on 1099-MISC income if it is reported in Box 7. Box 7, non-employee compensation requires a Schedule C for Self-Employment income 99.8% of the time. If your wife did the work over a four month period, then it is regular and continuous for that four month period and is thus subject to self-employment tax. About the only time Box 7 income wouldn’t require a Schedule C if they did a job, like cleared a lot over a weekend and the person/business issued them a 1099-MISC for that job and they did no other work like that (landscaping) during any other time in the year. If you don’t report your 1099-MISC Box 7 on a Schedule C, you will most likely get an IRS letter for self-employment taxes.
Makes no difference whether its one day or four months. SE /income tax is owed regardless. In some cases you can put it on line 21 (Form 1040 Schedule 1) and fill out Form SE. Probably best to use Sched C especially if you have If you have expenses.

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desertbandit442
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Re: HRB and TurboTax Handle 1099MISC Differently

Post by desertbandit442 » Sun Feb 24, 2019 11:07 am

pshonore wrote:
Sun Feb 24, 2019 10:04 am
desertbandit442 wrote:
Sat Feb 23, 2019 8:35 pm
IRS has cracked down on 1099-MISC income if it is reported in Box 7. Box 7, non-employee compensation requires a Schedule C for Self-Employment income 99.8% of the time. If your wife did the work over a four month period, then it is regular and continuous for that four month period and is thus subject to self-employment tax. About the only time Box 7 income wouldn’t require a Schedule C if they did a job, like cleared a lot over a weekend and the person/business issued them a 1099-MISC for that job and they did no other work like that (landscaping) during any other time in the year. If you don’t report your 1099-MISC Box 7 on a Schedule C, you will most likely get an IRS letter for self-employment taxes.
Makes no difference whether its one day or four months. SE /income tax is owed regardless. In some cases you can put it on line 21 (Form 1040 Schedule 1) and fill out Form SE. Probably best to use Sched C especially if you have If you have expenses.

Not entirely correct. The following is from The “Instructions for the Recipient” about Box 7 income on the back of the 1099-Misc:

“If you are not an employee but the amount in this box is not SE income (for example, it is income from a sporadic activity or a hobby), report this amount on the “Other income” line of Schedule 1 (Form 1040) (or Form 1040NR).”

Not all income in Box 7 is subject to SE tax. The fact of the matter is though, the IRS now treats all income reported in Box 7 as SE income and if you don’t pay SE tax on it you will receive an IRS letter and the burden of proof is yours to show it is not SE income.

jebmke
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Re: HRB and TurboTax Handle 1099MISC Differently

Post by jebmke » Sun Feb 24, 2019 11:16 am

I would think that if the contract work appears to be the same as (or similar to) the work done as a former employee, that would indicate that this is self-employment.
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Re: [H&R Block] and TurboTax Handle 1099MISC Differently

Post by LadyGeek » Sun Feb 24, 2019 11:20 am

This thread is now in the Personal Finance (Not Investing) forum (taxes). I also clarified the thread title.
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FiveK
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Re: HRB and TurboTax Handle 1099MISC Differently

Post by FiveK » Sun Feb 24, 2019 11:56 am

jebmke wrote:
Sun Feb 24, 2019 11:16 am
I would think that if the contract work appears to be the same as (or similar to) the work done as a former employee, that would indicate that this is self-employment.
^Exactly.

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itsgot8
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Re: [H&R Block] and TurboTax Handle 1099MISC Differently

Post by itsgot8 » Mon Feb 25, 2019 10:15 am

Thanks all for the responses. Just to follow up, I calculated the self-employment tax and income tax due at the 22% rate and it matches what Turbo Tax was reporting out. All good and was able to file over the weekend with confidence thanks to this group!

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