I don't think this is really a royalty, and your employer should not have issued a 1099-MISC for it. It should have just been included in the wages on your W-2. But the easiest way for you to handle it is to go along with what the employer did and report it as royalty income.
TurboTax makes this more complicated than it needs to be, because it uses one set of questions for both rental and royalty income. But here's how you can enter the royalty income.
- When you enter the 1099-MISC, for the source of the income select "Investment income from property you own."
- The next screen tells you it will create a Schedule E. That's the form for reporting royalties. Click Continue.
- For the description enter "Patent." For the location enter your home street address.
- "Do you have another 1099-MISC?" Select No.
- On the 1099-MISC Summary click Done.
- Now click the Update or Revisit button for the "Rental Properties and Royalties" topic. If you don't see it, type "Royalty" (without the quotes) in the Search box, then click the link that says "Jump to Royalty."
- "Do you want to review your rental and royalty information?" Click Yes.
- "Let's See if You're a Real Estate Professional." Select "None of the above" and click Continue.
- On the Rental and Royalty Summary screen, click the Edit button for the patent.
- "Is This a Rental Property or Royalty?" Select "Royalty property or payment" (probably already selected). The description that you entered earlier will already be filled in. For Location select "United States or U.S. Possessions." Fill in your city, state, and Zip code. The description and address that you enter will go on a worksheet in TurboTax, but will not appear on your actual tax return.
- "Does All the Income . . . Belong to You?" Select Yes.
- "What Type of Royalty Income?" Select "Other Intangible (Patents, copyrights)."
- "Did You Pay Anyone $600 or More . . . ?" Select No.
- "Let Us Enter Your Royalty Info for You." Select "Enter my royalty info myself."
- "Is Your Property in Any of These Designated Areas?" Select "None of the above."
- On the Royalty Summary screen click "Done With Royalty Property" (at the bottom).
- "Any Other Situations?" Don't check any of the boxes. Just click Continue.
- "Your Profit or Loss Results So Far." Click Continue.
- "Is this Qualified Business Income?" Select No.
- "Review Royalty Income and Expenses." Look at the summary if you want to, then click Done.
- "Rental and Royalty Summary." Click Done.
