@american887 wrote:
I'm confused. They're considering it royalties, but it was reported on 1099-NEC box 1 as nonemployee compensation. If I have to report this as self-employment income with Sched C, isn't it earned income? And aren't royalties earned income if you worked for them?
You said a 1099-NEC box 1, According to the IRS Royalty payments are reported on a 1099-MISC form box 2. (Self-employment pay is reported on a 1099-NEC, not Royalties).
It sounds like the 1099 is in error and not reported properly.
NEC box 1 means:
Box 1. Nonemployee Compensation
Enter nonemployee compensation (NEC) of $600 or more.
Include fees, commissions, prizes and awards for services
performed as a nonemployee, other forms of compensation
for services performed for your trade or business by an
individual who is not your employee, and fish purchases for
cash. Include oil and gas payments for a working interest,
whether or not services are performed. Also include
expenses incurred for the use of an entertainment facility that
you treat as compensation to a nonemployee. Federal
executive agencies that make payments to vendors for
services, including payments to corporations, must report the
payments in this box. See Rev. Rul. 2003-66.
What is NEC? If the following four conditions are met, you
must generally report a payment as NEC.
• You made the payment to someone who is not your
employee.
• You made the payment for services in the course of your
trade or business (including government agencies and
nonprofit organizations).
• You made the payment to an individual, partnership,
estate, or, in some cases, a corporation.
• You made payments to the payee of at least $600 during
the year.
See 1099 MISC/NEC instructions page 5.
https://www.irs.gov/pub/irs-pdf/i1099msc.pdf
Box 2. Royalties
Enter gross royalty payments (or similar amounts) of $10 or
more. Report royalties from oil, gas, or other mineral
properties before reduction for severance and other taxes
that may have been withheld and paid. Do not include
surface royalties. They should be reported in box 1. Do not
report oil or gas payments for a working interest in box 2;
report payments for working interests in box 1 of Form
1099-NEC. Do not report timber royalties made under a
pay-as-cut contract; report these timber royalties on Form
1099-S, Proceeds From Real Estate Transactions.
Use box 2 to report royalty payments from intangible
property such as patents, copyrights, trade names, and
trademarks. Report the gross royalties (before reduction for
fees, commissions, or expenses) paid by a publisher directly
to an author or literary agent, unless the agent is a
corporation. The literary agent (whether or not a corporation)
that receives the royalty payment on behalf of the author
must report the gross amount of royalty payments to the
author on Form 1099-MISC whether or not the publisher
reported the payment to the agent on its Form 1099-MISC.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
