1099-NEC creates "business income"

[slyeddie]

I have a "regular" job and a side-gig where I received a 1099-NEC for $1830. When I add this in TT, it's shows an amount of $259 in self-employment taxes (but seems to be under the "income" column on the Business tab where it says "Let's gather your business info"). I only started working the side-gig in September and I have not paid any self-employment taxes yet so I know I owe something, but I'm wondering, if this is correct.

[leeloo]

Yes, a 1099-NEC is business income. Since you do not have an employer who withholds taxes, you are responsible for both the employer (you) portion and the recipient (you) portion. Your profit is taxed at 15.3%. 

[slyeddie]

Thanks for the quick reply! Will TurboTax let you pay these taxes from the app, or do I need to pay those through some other mechanism. Sorry, I know this is a stupid question. Thanks again!

[leeloo]

You will either get a refund overall, or have a balance due. Everything will be reconciled on your return, including the SE taxes.

[slyeddie]

Awesome! Thanks so much!

[leeloo]

You're welcome. 

[AmyC]

Yes. You must pay Medicare and Social Security Tax on income earned. The IRS collects it for them on Form SE for the self-employed. Your self-employment tax is calculated at 15.3% on 92.35% of your 1099 net income and also subject to income tax.

For $1830, that is $259.

The Social Security Administration wants to make sure you get credit for working towards your social security and will add these earnings to your regular job earnings for an increased benefit.

[slyeddie]

Thanks to both of you! The fun just never ends! Now, we are wondering (actually doing this for our young-adult daughter) and it's asking if this is "qualified business income."  She does grant writing in her regular job and she is also doing grant writing for this side-gig. Thanks again! The US tax code is bananas! 🙂

[GeorgeM777]

If your daughter's grant writing is a business, rather than other income not performed in connection with a trade or business, then TurboTax will want to know whether your daughter's work is qualified business income in order to determine whether your daughter is eligible for the qualified business income deduction (QBID).  The deduction, if it applies, reduces the amount of business income subject to tax by 20%.  

There will likely be other screens asking questions about the nature of the work performed by your daughter.  Again, these questions are designed to determine whether the taxpayer is eligible for the QBID.  

@slyeddie

[slyeddie]

That's the problem. It's literally just asking "Is this Qualified Business Income?" and then below that it just says "Yes, grant writing is qualified business income" and "No, none of this is work is qualified." And we aren't sure. I mean, she doesn't have "business" in the sense that there aren't going to be any home office deductions or LLC, etc. Just the 1099-NEC income.

Again, thank you everyone who has already responded!

[AnnetteB6 · Accepted solution]

The Qualified Business Income (QBI) deduction can be very complex when a much higher level of income (>$170K)  is involved.  Most sole proprietorships (self-employed businesses) do have qualified business income.  

You can confidently answer 'yes' to the question about the grant writing being qualified business income.  This will give your daughter an additional tax deduction.  

If you want to learn more, look at the following TurboTax help article.  Just don't get too bogged down in the details.

What is the Qualified Business Income (QBI) deduction?

@slyeddie