Is interest earned on a sch C business subject to employment tax? 1099-INT has the business EIN. If not, where is it entered instead of Other Income on Schedule C?

[JohnW15]

Yes, it's subject to self-employment tax since it's income received by the business, and it's entered as Other Income on Schedule C..

[kdianne]

Even if the interest was bank interest?  Just clarifying since I forgot to add that information in my question.

[JohnW15]

Thank you for clarifying, it does make a difference and I should've asked.  Interest income from bank accounts isn't generally considered business income for a sole proprietor.  You should just report this as your personal interest income, on Schedule B.  Sorry if I misled you.

[kdianne]

Thanks for the answer.  Sorry I didn't provide all the info at first.

[buickmansfdt]

He stated that the 1099-INT used the business EIN as the recipient's TIN.  Does it get reported on the schedule C?

[AnnetteB6]

If the interest being reported is bank account interest, then it would be reported on Schedule B regardless of whether the Form 1099-INT was issued in the business EIN or the sole proprietor's social security number.  There is no appropriate place on Schedule C to report bank account interest.  

The most important thing is that it will be reported on the tax return.  Keep some notes with your tax records and a copy of the Form 1099-INT in case the IRS questions where the income was reported.  

@buickmansfdt 

[pb051]

I'm not sure answer here is correct. There does seem to be a location on schedule C to enter regular bank interest. Section does not seem to differentiate from sole proprietor or other businesses.  From IRS Publication 334, Section 7:

"Additions to Gross Profit

If your business has income from a source other than its regular business operations, enter the income on line 6 of Schedule C and add it to gross profit. The result is gross business income. Some examples include income from an interest-bearing checking account, income from scrap sales, income from certain fuel tax credits and refunds, and amounts recovered from bad debts. "

[imnotrod]

I do have a thought... report the interest income on Sch C - Line 6 as you should, as that is  how it is being reported to the IRS on the 1099-INT and probably where they will be looking for it, VS a "note to self" to explain you put it on Sch B - if (when) it is questioned.  Now, hear me out, assuming the Sch C is profit, and you are subject to 15.3% SE tax ... well Sch C Line 23 is "Taxes Expense"  So, 1099-INT amount  X 15.3% Tax Expense deduction would windup you're paying income tax on the interest, but not SE Tax, and would be a better argument to IRS if questioned.  I know, maybe I shouldn't be thinking out loud here.  Please, be gentle.  That is what I do, and have never been called out on it by the IRS.  

[DavidD66]

Unless the interest was earned as part of business operations (e.g. you're financing your sales, or charging interest on accounts receivable, or making loans)  Interest income reported on Form 1099-INT with the tax ID of a Schedule C business should not be reported on Schedule C.  It should be reported on Schedule B.  Enter the 1099-INT as interest income as if it has your social security number on it.  It's a similar concept as Interest income received by an S-corp - it isn't included in the calculation of "Oridnary business income (loss) " that is reported on line of the shareholders K-1.  It is excluded from that calculation and reported on line 4 - Interest income.  That interest income flows to schedule B of 1040.  Since your filing on Schedule C, your business is a disregarded entity for tax purposes.  Your interest income goes on Schedule B.