1099-NEC

[Rick19744]

Whether your husband received the $2,000 in wages or the 1099-NEC, it would be subject to taxes.

An employer can't give that amount of $$ as a "gift".

The only difference is that with the 1099-NEC your husband will be paying 7.65% more in FICA ($153).

The employer should technically pay this through wages, but didn't.

While your husband is not "technically" self-employed, the receipt of these $$ is subject to SE Tax (FICA).

[Opus 17]

Everything an employer pays an employee must be reported on their W-2, and is subject to income tax withholding and social security and medicare tax.  This was never a tax-free gift, and the new owner is avoiding his share of social security and medicare (accidentally or on purpose) by reporting it on a 1099 instead of the W-2. 

Start by asking the employer to cancel the 1099-NEC and issue a corrected W-2.   If they refuse (keep copies of your correspondence), then your husband should file by entering the 1099-NEC and checking the box for "I received a 1099 and a W-2 from the same employer and this income should have been on my W-2."  Turbotax will prepare a form 8919 with code H, to collect the employer half of social security and medicare (7.65%) instead of self-employment tax (15.3%).   If a bunch of people do this, the employer will probably get a call from the IRS.  

But you and your husband do owe the taxes. 

[Opus 17]

@Anonymous 

I do think you are kind of overreacting.  While it may be a surprise that you owe $500 or $600 in taxes, you will still net $1400 or so from the bonus. And TurboTax can prepare form 8919 for you, there is a question that covers this exact situation. If this requires an upgrade to a paid version of TurboTax from the free version, and you don’t want to pay the fee to use the paid version, you may be able to find other tax software that can prepare the appropriate form.  Or you can prepare your tax returns by hand. You can download all the forms and instructions, including form 8919, from the IRS website.

[Opus 17]

You received $2000 and will have to pay about $600 in taxes.  I'm sorry, but that's not "netting nothing," even if you had to pay another $100 to a tax preparer or a software package to help you prepare form 8919.  There are also volunteer service organizations that will help prepare tax returns for free, just tell them this $2000 from the 1099-NEC needs to be reported on form 8919 with code H instead of on a schedule C.  

[Anonymous]

I don’t know if I didn’t word my post correctly or if you’re misunderstanding what I wrote and this may not make a difference but the check was sent almost five months after the owner sold the business to someone else. They were also not self-employed by this guy and did no work FOR HIM and his company effective March 1 2023. None. Their paychecks for January and February had social security, Medicare, federal and if applicable, state taxes taken out of each paycheck and they received a W2 for all wages paid by him. It was NOT the new employer who paid them that money.

Again, I get this may not make a difference but I want answers based on the correct information.

[Opus 17]

You seem to have deleted all your prior posts and changed your name, so I can't directly reply to you.

If "Bob" gave your spouse a bonus, as a result of your spouse's performance of employment duties for Bob, then the bonus should be reported a W-2.  Even if Bob sold the business to "Jake" 6 months prior, if Bob paid a bonus to Bob's former employees because of their service, then the money is wages on a W-2.

Even though it was reported on a 1099-NEC, the employees who received the bonus may report it on form 8919 using code H.  The employee still have to pay the income taxes, plus the employee half of social security and medicare (which would have been withheld anyway if the bonus had come from a regular payroll), but the employees are not self-employed and don't pay self-employment tax which is double the normal social security withholding.  

[LD9797]

Thank you for your reply. He didn’t want this on the internet and I actually was in the process of deleting the account. My husband did talk to him last week and all he could say was he’s sorry and didn’t realize the mess it made. I heard some of what they both said. Apparently his books were still open when he wrote all those checks and still are, unless he’s going to quickly close them now. I have no problem paying taxes that I am supposed to pay but I want it to be done correctly and fairly. My husband has never been self-employed because he doesn’t want the hassle lol. Frankly, neither do I! I went down that road for just a few months with one of those MLMs and uhuh. Not for us. We prefer having taxes withheld and getting a W2. 
We did file already using form 8919 with code H and paid our fair share. The ACH payment has already been taken out of our account and we’ll go from there. Hopefully others file this way, too. 
Another fun fact, he checked the married/jointly box on his W4 but the taxes withheld were for single. My husband has a bad habit of not looking at paystubs, which I am correcting now! But, even if he had, I have no clue what federal taxes would be. And I don’t know if this acceptable but his stubs from that company do not have his filing status on them. All his others and mine that I used to have all did. When I looked at the two W2s, I couldn’t believe the difference in federal taxes withheld so I can only assume that’s why. He did receive a vehicle allowance, which is taxable, but I highly doubt that tax would be more than the allowance itself because the difference between the two companies federal withholding was about $94 and the allowance was $92. Just a fun fact I thought I’d throw out there!