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

[AvaNicastro]

TurboTax is not correctly treating 1099-NEC income that is earned but not self-employment.  If I enter 1099-NEC information under “Other Common Income” and then select “sporadic or hobby income” the income is automatically treated as unearned if more than $2,500, which then forces me to complete Form 8615 (Tax for Certain Children Who Have Unearned Income ).

[SusanY1]

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.  

 

[AvaNicastro]

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.

[CatinaT1]

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.

[AvaNicastro]

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.)

[CatinaT1]

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.

[AvaNicastro]

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?

[AvaNicastro]

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.

[CatinaT1]

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

[AvaNicastro]

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

[CatinaT1]

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

[AvaNicastro]

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.

[CatinaT1]

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. 

[AvaNicastro]

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?

[CatinaT1]

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.