TurboTax is not correctly treating 1099-NEC income that is earned but not self-employment.

If it's earned income, then it is going to have to be treated as self-employment income for the most part. 

Can you tell us a little bit more about why you feel it shouldn't be self-employment income, yet it also shouldn't be unearned?  Generally, if not treated as self-employment income, it has to be "unearned".  It can't really be both earned income and excluded from self-employment tax, usually.   If it's earned income, then it's subject to SE tax with limited exceptions.  

 

It was a one-time, volunteer, unpaid internship program that offered a fixed honorarium to help defray the costs of participation and to minimize the sacrifice necessary in participating in the program.  Thus, it is earned income from a sporatic activity, not self-employment income.

However, I'm not really seeking an opinion on how to treat this income for tax purposes.  I would like to know how to use TurboTax to report this 1099-NEC income as earned, not self-employment income on line 8 of the 1040.  As you said, there are limited exceptions.  So, I don't beleive TurboTax should be excluding the ability to apply these limited exceptions.

You can enter this as other income, because it is an honorarium.

Here's how:

1. Under income and wages you will select Miscellaneous Income, 1099-A, 1099-C

2. You will scroll all the way to the bottom and select Other reportable income

3. You will enter Honorarium for the description and then the amount.

Thanks. That is exactly the workaround I ended up doing. Unfortunately, that approach caused me to upgrade from the free version of TurboTax to the Deluxe version in order to complete my very simple tax return. I ended up paying more for TurboTax than I paid in taxes. In addition, it does not allow me to enter all the 1099-NEC information. This will make it more difficult for the IRS to match my reported income to the income reported on the 1099-NEC.

Which brings me back to my original statement, "TurboTax is not correctly treating 1099-NEC income that is earned but not self-employment." I believe this is a bug in TurboTax that could easily be corrected with one more interview question during 1099-NEC entry. I understand that the 1099-NEC is a new form this year which TurboTax may not have fully implemented yet.  The purpose of my original post was to report this bug to TurboTax in order to improve the product for next year.  (And, perhaps get you to refund the fee I paid due to this bug.)

When you report your 1099-NEC as other income, you do not enter your 1099-NEC on your return. If it would feel better you could put the description as Honorarium reported on 1099-NEC.

Good idea.  But, this is still a method to workaround a TurboTax bug.  Had I not figured out that TurboTax is not correctly treating 1099-NEC income that is earned but not self-employment I would have paid several hundred dollars in extra taxes.  Specifically, while entering the 1099-NEC information I selected, “sporadic activity, not self-employment”.  At that point TurboTax incorrectly classified the income as unearned.  It took me several hours to discover this error and the workaround method you have acknowledge in this discussion.

How do I request a refund of my TurboTax purchase under the TurboTax Maximum Refund Guarantee?

This advise is not correct.  This method of entering my honorarium will also result in the income being classified as unearned by TurboTax.  The correct method is:

1. Less Common Income Home sale, canceled debt (1099-C, 1099-A), 1099-SA, gambling, etc.
2. Miscellaneous Income, 1099-A, 1099-C
3. Other income not already reported on a Form W-2 or Form 1099
4. Select Yes and Continue until Any Other Earned Income
5. Select Yes and Continue and  Other and Continue to get to the Any Other Earned Income form.
6. That’s where You will enter Honorarium for the description and then the amount.  Then it will be treated as earned income by TurboTax and shown on Form 1040 line 1h.

Where are you seeing it classified as unearned income? Can you provide a screenshot?

When I enter it the way you advised it forces me to complete Form 8615 because the amount is over $2,500 (see below).

That's not right. Are you single? Married? Dependents?  Also, why is it important for it to be considered earned income?

I'm single, no dependents, and I am a dependent on my parents return. If it's reported as unearned income it's subject to the kiddie tax because it's over $2,500.

Ok, that makes more sense why you have a form 8615 coming up, but entering it as Miscellaneous Income is not correct either. This is for wages that were not reported, an honorarium is not wages and you did receive a 1099-NEC.

I am not able to replicate getting an 8615 to show up with entering it under Miscellaneous, other reportable income.  Do you have other income besides this honorarium? What is the amount of your honorarium? What is your age? I will try matching your age and amount, but so far, I am not knowing why you are getting an 8615. 

I do have other income.  However, I'm not comfortable sharing additional details in an open forum.  Please contact me directly if you want to discuss it further.

However, I have already reviewed my return with a TurboTax expert in a chat session with screen sharing.  They confirmed it is correct.  As this point I just want my TurboTax purchase fee refunded.  How do I do that?

Why would your fee be refunded? I know you said you thought this was a TurboTax error, but really it is not. Income reported on a 1099-NEC is typically reportable as Self-Employment. The NEC stands for Non-Employee Compensation.

The issuer of the form should have put it on a 1099-Misc in box 3 as other income. 

The key word is, "typically". Are you saying that TurboTax is only typically guaranteeing the maximum refund? I understand that often 1099-NEC is self-employment income. But not always and not in my case. So yes, it is a TurboTax error and I should be refunded under the TurboTax Maximum Refund Guarantee. How do I get refunded?

I understand what NEC stands for. The issuer purposely used a 1099-NEC because the income is earned. Starting this year Form 1099-MISC is only used other types of payments, such as rents, royalties, fishing boat proceeds, and payments to an attorney for legal services. If they had used a 1099-MISC it would have been unearned income for me.

I had the same experience as the originator of this discussion. I received a 1099-NEC for being poll worker at three elections in Ohio in 2023. Obviously this is not self-employment business. Because I had to enter this 1099-NEC, I was required to upgrade to the TurboTax Basic product, otherwise I could have used TurboTax Basic online; my taxes are that simple. In entering the 1099-NEC, I was then required by TurboTax to create an associated Schedule C business and pay additional self-employment taxes.  Seeing this result, I went to the IRS and found this instruction for reporting my 1099-NEC income: “If the income reported on Form 1099-NEC is not self-employment income, but instead from a sporadic activity or hobby, report it on line 8, Other Income”, on Schedule 1 (1040)”.  Since TurboTax did not have this option, I had to do this manually.

TurboTax does have the option of reporting income on Form 1040 Schedule 1 line 8 when the income is not considered to be self-employment.  

Here are the steps:

• Go to Wages and Income > Other Common Income > Income from Form 1099-NEC and click Start or Update
• Enter the details reported on your Form 1099-NEC
• Describe the reason you received the income
• On the screen titled 'Does one of these uncommon situations apply?', select the This is not money earned as an employee or self-employed individual, it is from a sporadic activity or a hobby choice 

The result is that the income is reported on Form 1040 Schedule 1 line 8z with the amount and description that you entered.

@keithkrueger 

This advice is NOT CORRECT and was previously recommended in this thread by a TurboTax Expert.  Following this method will result in the income being classified as unearned income in my case (as a Dependent on my parent's return).  I posted the correct approach earlier in this thread.

The only question I have on this topic is how do I submit claim to get refunded under the 

TurboTax Maximum Refund Guarantee

This is the third time in this thread I have asked how to submit a refund claim.  I'm starting to question is this guarantee really exists.  I am not asking for an opinion regarding the validity of my claim nor am I any longer asking for help to complete my taxes.  PLEASE JUST ANSWER MY QUESTION!

Use the following link and select the license agreement for the TurboTax product that you used.  Then search the document for the term 'maximum refund' using CTRL-F.  There you will find the details for how to submit a claim under the guarantee.

TurboTax Agreements and Licensing Disclosures
 

@AvaNicastro 

Thank you!

Posting the claim process below for others.  Seems like a lot of "hoops"  for a customer that just helped TurboTax and other users by identifying a problem in their software.  But, I guess I'll play the game.

(b) TurboTax Maximum Refund Guarantee – Individual Returns. The TurboTax Maximum Refund (Tax Savings) Guarantee is for the lifetime of your 2023 individual tax return, which Intuit defines as seven (7) years from the date you filed it using TurboTax Online. The Guarantee applies only to individual returns filed using TurboTax (excluding business returns), and only if filed with the IRS or, in the case of state returns, the relevant state tax authority, all subject to the
terms below:

1. If you are a registered user of TurboTax and use TurboTax for preparation and filing of your 2023 individual return, and later file an amended return using identical information and data but using a tax preparation method other than TurboTax, and you receive a larger refund amount or pay a smaller tax due amount using such alternative method (excluding where any tax law changes made by federal or state governments after your original TurboTax-based return was filed cause a change in refund or tax due), then Intuit will refund to you the applicable purchase price actually paid by you for the preparation and filing of your 2023 federal and/or state individual return using TurboTax Services. TurboTax Free Edition customers are entitled to payment of $30 in such case. To qualify, the larger refund or smaller tax due cannot be attributed to variations in the information or data you used for such alternate tax preparation method or for positions taken by you or your alternate preparer or method that are contrary to the law, or to changes in tax law that occurred after you filed your return using TurboTax.
2. Claims must be submitted within sixty (60) days of the date you receive a larger refund amount or pay a smaller tax due amount and no later than seven (7) years after the return was filed, which Intuit defines as the lifetime of the tax return.
3. To submit a claim, you must provide Intuit with the following documents via first-class U.S. mail and add USPS Tracking to your shipment to ensure tracked delivery:
1. copy of your TurboTax proof of payment (i.e., sales receipt) and/or shipment packing slip,
2. copy of your proof of payment for another tax preparation method (unless done manually by you),
3. copy of your TurboTax data file and return,
4. copy of the printed and filed tax return from the other tax preparation method; and
5. a letter summarizing your refund or tax due amount using TurboTax and your refund or tax due amount using another tax preparation method.
   
   You must send all of the foregoing by mail to TurboTax Maximum Refund Guarantee, 2800 E Commerce Center Place, Tucson, AZ [removed]. You must maintain separate copies of all submitted items for your records. Claims of non-payment of a refund of your TurboTax purchase price will require photocopy substantiation of all required items. Please allow up to 6 weeks for processing and delivery. If after 8 weeks you have not received your check, contact us via the TurboTax support website. Any materials submitted to Intuit are understood to be non-returnable. You are responsible for maintaining all documents necessary to qualify for the Guarantee.
4. All other fees you may have paid to Intuit for additional services or as add-ons to your Tax Year 2023 return are excluded from this money-back guarantee, including but not limited to electronic filing fees, Audit Defense, Refund Processing Service and technical support fees, if any. This guarantee cannot be combined with the Satisfaction Guarantee below. This guarantee does not apply to business returns.

How do I submit the TurboTax data file by US mail?

Isn't there an email address or online form submital for claims?

How do I submit a claim under the TurboTax Maximum Refund Guarantee?

The instruction in this thread (see above) require submitting the TurboTax data file which is a multi-megabyte binary file, which cannot be printed.  The online submittal form discussed elsewhere in this forum only supports claims for the Accuracy Guarantee.  Upon searching this forum for others having a problem submitting a claim under the Maximum Refund Guarantee I found no resolution.  It seems most people just gave up.

I submitted this same question one week ago in this thread (see above) but did not receive a response from anyone at TurboTax.  At this time I am disputing the TurboTax fee with my credit card company which I am hoping will force TurboTax to respond to with a method to submit the TurboTax data file.