Why didn't TurboTax generate a Schedule SE?

[T-W-S]

I used TurboTax to file my 2021return.  In addition to wages from Forms W-2, I had additional income from Forms 1099-NEC and 1099-G, so TurboTax generated a Schedule 1, which includes a $99 business loss from Schedule C, $24,751 in unemployment compensation (from Form-1099G), and a $5,000 Wisconsin Tomorrow Small Business Recovery Grant (from Form-2099G), for a total Additional Income of $29,652.  However, TurboTax did NOT generate a Schedule SE.

Yesterday I received a letter from the IRS telling me I should have include a Schedule SE.  Why didn't TurboTax generate a Schedule SE?  Was I supposed to pay self-employment tax on my unemployment compensation and grant money?  And if so, why didn't TurboTax know this?  Can I now use TurboTax to fill out a Schedule SE, even though I've already filed my return?  

Thanks very much to anyone who can help me!!!

[Critter-3]

The SE would be generated automatically if you had a profit on the Sch C which you did not ... so look at that notice again  carefully ... there must be some other income the IRS believes should have been on a Sch C.  That grant ... what tax form was it reported on and what line of the Sch 1 did the program put it on ?  

[T-W-S]

Thanks very much for your reply, Critter-3!  The grant was reported on a 1099-G, and TurboTax put it on Schedule 1, Line 8z: "Other income.  List type and amount - Taxable Grant from Form 1099-G"

[rjs · Accepted solution]

Unemployment compensation is not subject to self-employment tax. The recovery grant is probably what is causing the problem.

TurboTax put the grant on Schedule 1 line 8z because you entered the 1099-G under "Other 1099-G Income." What the IRS is probably saying is that, since the grant is for your business, it should have been included in the business income on Schedule C. That would give you a profit from the business and would generate Schedule SE to calculate self-employment tax on the business profit.

Read the entire IRS notice carefully, and follow the instructions in the notice for how to respond. If you need to revise your tax return to create Schedule SE, since you are using the CD/Download TurboTax software, first save a copy of your filed tax return with a different name. Make any changes to the new copy, so that you don't change the original return that you filed, and you can get back to it if necessary. To move the grant income to Schedule C, delete the 1099-G that you entered. Then enter the grant as other business income that was not reported on a 1099-NEC or 1099-MISC.

[T-W-S]

Thanks so much, rjs!

[Critter-3]

1. Will my business receive a Form 1099-G?

   DOR will issue each grant recipient a 2021 federal Form 1099-G by January 31, 2022, indicating the grant is taxable for federal income tax purposes.

https://www.revenue.wi.gov/Pages/TaxPro/2021/WisconsinTomorrowSmallBusinessRecoveryGrant.aspx

[T-W-S]

Thanks Critter-3.  Right, I was aware that I needed to pay income tax on the grant, but self-employment tax never even occurred to me - stupid me!  User rjs helped me to understand that I should have included the grant money on my Schedule C as other business income that was not reported on a 1099-NEC or 1099-MISC, rather than as "Other 1099-G Income" on Schedule 1. 

Thanks again for your help!