All money paid by your employer for work performed is considered wages and should be reported on the W-2, and is subject to withholding of income tax, social security and medicare tax. If the employer pays a bonus on a 1099-NEC, they are (accidentally or intentionally) avoiding paying the employer half of social security and medicare, and they may be avoiding other responsibilities.
Your first step should be to contact the employer and ask for a corrected W-2. Keep copies of your correspondence and their refusal (assuming they refuse).
To properly report the bonus, enter the 1099-NEC as-is, but then on the list of "special circumstances" check the box for "I received a W-2 and 1099 from the same employer and this 1099 should have been included in my W-2." Turbotax will prepare a form 8919 with code H, which is correct for this situation. You will be assessed income tax of course (since this is taxable income) and you will also be assessed the employee half of social security and medicare tax that should have been withheld by the employer. But you don't pay the full self-employment tax and you won't have a Schedule C for self-employment.
If this is for a prior year, you may need to prepare an amended tax return. It's unclear what you originally reported. Did you report the W-2 and a separate self-employment job for the 1099? If so, then you overpaid your taxes. Did the employer issue a corrected W-2 that included the bonus, and cancel the 1099? In that case, the IRS is seeing your W-2 doesn't match, and they don;t know that your 1099 self-employment didn't really exist. Start by getting your wage and income transcript from the IRS for that year, to see if there is a corrected W-2 on file and if the W-2 on file with the IRS matches the one you received.
https://www.irs.gov/individuals/get-transcript
If there is a corrected W-2 on file, you should amend your return to update the W-2 and remove the self-employment. Your taxes should go down, not up. Or, if the IRS only has the original W-2, you should amend your return to remove the schedule C self-employment and report the bonus on form 8919 instead. Don't file the amended return normally, instead you will print it, sign it, and mail it to the office that sent the tax notice, along with a detailed letter of explanation, possibly including copies of pay stubs and other correspondence from the employer.
