Egg donation tax reporting, Roth IRA eligibility?

[a11]

I received money from donating my eggs and that will be my only income this year as a student. I want use it to max out my Roth IRA and I'm confused if this income counts as "earned income" since it is taxable. I have heard of egg agencies issuing 1099s and having donors report as self employment tax but my agency does not issue them. I've also heard of donors reporting it as other income on line 21 of 1040. I'd rather not be subject to the high self employment tax but I want to be able to have income to contribute to my Roth. I'm also confused about the standard deduction and am wondering if that means I won't have to pay taxes since my compensation is less than the deduction. I've never filed taxes before and sorely need advice on this matter, thanks

[Opus 17 · Accepted solution]

Egg donation is not earned income.  It should be reported on a 1099-MISC in box 3, not box 7, and even if it is reported in box 7, should be reported as "Other income."  You are not engaged in an "ongoing trade or business" and the income is not subject to 15% self-employment tax.

Consequently, it also does not qualify as earned income to allow you to contribute to a traditional or Roth IRA. 

For 2018, the standard deduction for a single person is $12,000.  If your compensation is less than that, you will owe no income tax, and don't need to file a tax return at all.  However, if you receive a 1099-MISC and don't file, you may receive a letter from the IRS asking why you did not file.  So your options would be, file a tax return showing no tax owed but listing the 1099-MISC for the sake of listing it; or not filing, and responding to any IRS letter you may receive by telling them this was your only income and it was not from self-employment, so no tax is owed and no return was required.

[TaxGuyBill]

A couple of notes:

(1)  If you regularly sell your eggs, it could be a business (self employment, and therefore eligible to contribute to a Roth IRA).

(2)  If you are a full time student under age 24 and your total income from the egg donation is over $1050, reporting it as "other income" will result in requiring to file a tax return and likely owing tax.  The $12,000 threshold would not apply in that situation.

[jmancher]

What if this is not the only income you are earning during the year? For example, if I have a salary position making $50K and make $5K from an egg donation, how would this change the situation?

[Texas Roger]

Nothing would change regarding the income from the egg donation and where to enter it. You would have to file a tax return due to your salary income. The income from both your salary and your egg donation are entered on the same tax return. 

[jmancher]

So I would just pay taxes at my current tax rate? Also, do I wait until I file my tax return to pay taxes or do I need to pay them sooner?

[Texas Roger]

You should probably increase your withholding on your current salary by at least 10% or pay estimated taxes in the amount of $5000 times your current tax bracket to avoid an underpayment penalty when you file your tax return. Here is how to pay estimated taxes directly to the IRS: https://www.irs.gov/payments/direct-pay

[Eseanz1990]

Hi I was also an egg donor and need to file them on my taxes this year I was just wondering what you ended up doing? Did you put the egg donation under “self income” or under “other income?” And did you end up receiving your 1099 forms I have yet to receive them any information helps thank you 

[KarenM90]

Claim it under Income & Expenses and choose Less Common Income.

It is not self employment income.  

[DanielleJ96]

I started my taxes before I had gotten my 1099 and I was getting 224 back from fed but as soon as I entered my 1099 from egg donation I now owe over $1000 in just fed taxes is this normal? I was under the impression it would not make me owe money in taxes and would just be filed as a 'one time' income. Instead of getting ~$300 back in now owe almost $1400.

[ReneeM7122]

You are correct, egg donation is considered one-time income.  There was actually a US Tax Court case about this in 2015, and the IRS held that payments for fertility egg donations are considered taxable income.  This is the issue.  Take a look at your 1099 and double check your entries in TurboTax.  If there is no withholding (the box is blank) then it means that you haven't paid tax on the income.  When withholding isn't taken from taxable income, the IRS will collect the tax owed after you file your tax return for the year. That is what is causing the software to calculate tax owed.

[Opus 17]

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@DanielleJ96 wrote:

I started my taxes before I had gotten my 1099 and I was getting 224 back from fed but as soon as I entered my 1099 from egg donation I now owe over $1000 in just fed taxes is this normal? I was under the impression it would not make me owe money in taxes and would just be filed as a 'one time' income. Instead of getting ~$300 back in now owe almost $1400.

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It is taxable income, subject to regular income tax.  It should not be considered "self employment" income, which would make it subject to regular income tax plus an additional 15% self-employment tax.  

What kind of 1099 did you receive, and how did you enter it?  Did you say it was "like work" or "done for profit"?  Did you say you had expenses to deduct?

[DanielleJ96]

I got a 1099-NEC and it didn't give me an option of being like work. I put it under the common wages form for 1099-NEC b cause the other option was self employed 1099-NEC. I didn't put any expenses to deduct either

[Opus 17]

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@DanielleJ96 wrote:

I got a 1099-NEC and it didn't give me an option of being like work. I put it under the common wages form for 1099-NEC b cause the other option was self employed 1099-NEC. I didn't put any expenses to deduct either

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It sounds like you probably did not create a schedule C or schedule SE and are only paying income tax.  It's hard to tell with Turbotax Online because you can't view the forms until you have paid any fees.  After paying the fees, you can view and print your forms before actually transmitting your return.  When you review your return before filing, make sure you do not have a schedule C or schedule SE as part of your return.  This should be listed as "other Income" on line 8 of schedule 1, which carries over to line 8 of form 1040. 

Also note, because this was reported on a 1099-NEC, the IRS will assume this was self-employment income and if you don't pay self-employment tax, they will send a letter assessing the tax.  You will have to reply to that letter with an explanation and proof that this was for egg donation, that it is not your "ongoing trade or business" and that you did pay income tax on the money but are not required to pay self-employment tax. 

[taxesconfuseme]

Hi, first of all, thank you so much for your help here. I don't know what I'd do without internet strangers like you! 

I also received a 1099-NEC. Are you saying that instead of choosing 1099-NEC, I should instead fill out the boxes for a Schedule 1 (1040) like I received a 1099-MISC instead? Then, I wait for the letter from the IRS and write them back telling them it's not an ongoing thing. When I choose the 1099-NEC, it forces the self-employment (15%) tax, and of course I don't want to pay this if I'm not supposed to.