Since this was listed as the Best Answer in this thread, I'm replying both to add information that I hope will clarify the problem and to ask if anyone has a more thorough answer that takes this new information into consideration.
The work that generates these foreign royalties is originally paid as wages and reported on a W-2, as actors are considered employees of the production company for the purpose of the project. Domestic residuals are also paid as wages and reported on form W-2.
As explained on SAG-AFTRA's website, foreign royalties are not residuals. When I receive them, they're usually paid by a different payroll company than the one that sends my residuals for the same production. Taxes are never withheld from these payments. In any given tax year, the payroll company that handles my foreign royalties will sometimes issue a 1099-MISC and sometimes will not issue any tax form at all. If they issue a 1099, the amount earned will be listed in Box 2: Royalties.
If I don't receive a tax form, the simplest solution seems to be to claim it as Other Income. If I receive a 1099-MISC, however, then there's a dilemma. It's not truly self-employment income because I earned it for work performed as an employee, so Schedule C doesn't seem appropriate. How else can it be claimed, though, if it has been reported on a 1099-MISC?
Supposing I do let TurboTax create a Schedule C for this income, then it asks me, "Is this Qualified Business Income?" In order to be considered QBI, it must meet two requirements:
- The business is operated in the United States — It's not really a business, so this is already a difficult question to answer, but since the work was performed in the United States, let's go with "Yes."
- The income is not treated as wages by the IRS — This one is much trickier. Whether pay is considered wages seems to depend mostly on the worker's relationship to the employer over the past three years. Since an actor performs work for a very short period but continues to receive payments for that work for potentially years, has the working relationship changed after three years or not? If all the other payments for the same work were initially considered wages and are still considered wages when paid in the form of domestic residuals, are the royalty payments substantially different just because they're not considered residuals? Would the IRS consider them wages or not?
This issue has existed for so long that someone in the entertainment industry should really have figured this out by now and made the information widely available to actors. Hopefully, a tax expert here can provide a detailed and reliable solution for actors that receive foreign royalty payments, both with and without a form 1099-MISC.
