I received an Iowa DHS Retention Bonus (https://dhsbonusprogram.powerappsportals.com/) reported on a 1099-NEC. I am a preschool teacher. Why schedule C?

[Ashel56]

This income was not based on hours or services rendered. It was not paid by my employer. Do I need to report it as business income on a Schedule C?

[AmyC]

No, you do not want sch C and self-employment tax. You want to enter the 1099-NEC:

under Other Common Income.

Select Add 1099-NEC and enter the information. If you upload, double check the entries.

Describe the reason, Retention Bonus, continue

Select This is not money earned as as employee. It is from a sporadic activity. 

• It was not a regular payment, it was a one time event.
• This was a bonus to keep you as an employee - not part of your regular earnings.

This properly puts the money on line 8z of schedule 1.

[Ashel56]

I was told by an expert last year when I had a similar situation that putting this income as “other income” would automatically trigger an inquiry because anytime a 1099-NEC was submitted they would look for a Schedule C. Can anyone confirm or deny the legitimacy of this claim? I do not want to deal with the headache of an inquiry. 
@AmyC 

[PatriciaV]

While there are no guarantees for what the IRS may or may not do, the answer provided by Expert AmyC is correct. Form 1099-NEC is relatively new and used to report many types of income. Receiving this form does not always mean you are self-employed. That's why you'll see several options under Other Common Income in TurboTax. As you enter the 1099-NEC, just be sure your answers are accurate and complete.

[Ashel56]

@PatriciaV 

@AmyC 

I guess why I am still confused is because according to this IRS document ( https://tax.iowa.gov/sites/default/files/2023-01/2022%20Expanded%20Instructions_011223.pdf ) an NEC is used for “services in the course of trade or business” and should not be used for “other income not subject to self-employment tax”. (See below for the passages to which I am referring) This would make it seem that this income should not have been reported on Box 1 of a 1099-NEC, but instead Box 3 of a 1099-MISC. The payer has been no help to me with any of my concerns and it would seem there is no chance of them reporting it differently. 

Passages from document:

What is NEC? If the following four conditions are met, you must generally report a payment as NEC.

• You made the payment to someone who is not your employee.

  • You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).

• You made the payment to an individual, partnership, estate, or, in some cases, a corporation.

Payments not reported in box

1. Do not report in box 1:

• Expense reimbursements paid to volunteers of nonprofit organizations;

• Deceased employee wages paid in the year after death (report in box 3 of Form 1099-MISC) (see Deceased employee's wages, earlier);

  • Payments more appropriately described as rent (report in box 1 of Form 1099-MISC), royalties (report in box 2 of Form 1099-MISC), other income not subject to self-employment tax (report in box 3 of Form 1099-MISC), and interest (use Form 1099-INT)

[mseifer1]

Similar situation to above - Received a retention bonus as a preschool teacher from a state govt agency.  Received a 1099-MISC.  Turbo tax continues to force this into a schedule c.  How do I just account for this as misc income and not a small business.  Turbo tax 2022 kept it as misc income  on schedule 1 - And did not force a business based filing.     

[CatinaT1]

If you received a 1099-MISC, you would enter it this way.

Take the following steps:   

1. Sign in to TurboTax Online, click Continue your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);  
2. Click on Federal Taxes at the top of the screen;  
3. Scroll down the page to the last section titled:  Other Common Income;  
4. Select start or update next to the topic titled Income from Form 1099-Misc;  
5. Answer Yes, to the questions Did you get a 1099-Misc?; 
6. Enter the information from your 1099-Misc; 
7. Enter Retention Bonus for a reason for the 1099-Misc; 
8. For uncommon situations, select None of these apply; 
9. You will then be asked if the bonus involved work that's like your main job, say No. 

If you entered this any other way, make sure to delete the other entries. 

@mseifer1

[edited 4.1.24 | 5:41am]