The IRS looks to the origin of the payment to determine its
taxability. The residual income you
receive is of the same character as the income you received when you were in
business and fully self-employed. Consequently, it would still be subject to
self-employment tax. You also receive a
tax deduction for half of the self-employment tax you pay (on Line 27 of your
Form 1040). You would report this income
on your Schedule C. TurboTax will handle
the calculation of the self-employment tax and your deduction. The following TurboTax link explains the
Self-Employment tax.
