My wife received a 1099-NEC for 10 months of contract clerical work. How should she file it?

[wduncan6983]

My wife was laid off in Oct 2020. In Feb 2021, she started doing contract work for a competitor doing the same basic type of clerical work she did for her previous employer. She received a 1099-NEC form from the company that she did contract clerical work for the 10 months of work she did in 2021. Turbotax is trying to process this as if she were a business owner and asking for a lot of "business owner" type information that we do not have. She does not own/operate a business. She did clerical work from home and had no business expenses to report. Shouldn't the work she did in 2021 be filed as W2 or 1099-Misc?

[PattiF]

Form 1099-NEC is the form used to report payments to a contract worker. A W-2 is used to report an employee's wages. Since your wife was a contract worker, a 1099-NEC is the correct form to report her income.

She would file a Schedule C for self-employment. The amount of her income will be taxed with Self Employment taxes that cover her share of Medicare and Social Security Payments. and regular income tax. There may be some expenses that could be used against the income on the 1099-NEC. A home office deduction can be used if an area was used solely for her work. She will need to file as a business to report the 1099-NEC. 

This TurboTax article explains the 1099-NEC.

[wduncan6983]

Thank you for your reply.

Does this mean that we must file separate returns because she worked as a contract employee or can we continue to file a joint return like we have in the past?

[LenaH]

You can continue to file jointly as you did in prior years. You do not have to file separate returns due to your spouse filing a Schedule C. 

@wduncan6983

[wduncan6983]

Thank you for your reply.

My wife and I are both in our mid 60's and retired now. She did the contract clerical work last year to provide income until she could retire. Everything I am reading about deducting home mortgage and interest expenses assumes you have a mortgage. Our home has been paid off for 5 years now. What cost basis do we use to determine how much of a home office deduction we are entitled to?

[JamesG1]

For tax year 2021, the rate for the simplified square footage calculation is $5 per square foot, with a maximum of 300 square feet.

If you do not claim the simplified square footage method, use the actual cost that you paid for your home as the depreciation component of the home office deduction.
 

You may qualify for the home office deduction if you use a portion of your house, apartment, condominium, mobile home, boat or similar structure for your business on a regular basis.  Generally, your home office must be either the principal location of your business or a place where you regularly meet with customers or clients, and you usually must use the area exclusively for your business.
 

[wduncan6983]

Thank you for your reply.

We bought our home 36 years ago and its value has increased considerably over the years. Can I base my deduction on the current assessed value that I am paying property taxes on?

[DawnC]

The cost basis is the original cost of the home plus any adjustments that result from transactions over the period you own the asset. Examples of adjustments would be an increase in valuation due to a property improvement or a decrease in valuation due to unreimbursed storm damage to the property.    

Details of the Home Office Deduction   

You do not have to recapture any depreciation for taxable years in which you used the simplified method.  However, you may have to recapture depreciation for taxable years in which you used the standard method.   See IRS Q and A on this topic.

[wduncan6983]

I completed Sched-C for my wife's contract labor work. I was never questioned about unpaid employee SSA and Medicare or any mention of requiring Form 8919. Form 1040-SR does not mention SSA or Medicare payments owed either. Did I miss something? 

[KrisD15]

No, you didn't miss anything.

Self-Employment tax is computed by the income on the Schedule C. 

You will see it reported on your 1040 line 23. 

The IRS takes care of applying those payments to her Social Security account. 

Form 8919 is only used if you are contesting the way you were paid. If you were paid as an independent contractor but you are claiming that you should have been paid as an employee, you would use Form 8919. 

Your return should include Schedule SE. 

If you agree to being treated as an independent contractor, the tax from the compensation, including FICA (social security) is all handled from the information you report and your Schedule C. 

[wduncan6983]

Hi,

Thank you for your help.

I looked at line 23 and it contains a combined amount for "Other taxes, including self-employment tax". Our taxes were mailed in on 4/18, but have yet to be processed, so her SSA account has not yet been updated for 2021. No taxes were withheld during the year so she has a zero balance. Now that she is retired, we would like to start drawing her SSA. Is there a way to estimate her SSA withholdings or do we have to wait for our taxes to be processed before we can start drawing her SSA?

[leeloo]

No, you do not need to wait until your return is accepted to file for SSA. The two have nothing to do with each other. You can, in the meantime, create a fake return and add all your income.  Then you can see where you stand and play around until you arrive at the withholding you feel comfortable with.

[VolvoGirl]

It takes the SSA  a year or two to update her Social Security account for earnings from self employment.  There is a lag.  Call Social Security and ask them how it works.