I received a signing bonus 4 months before hire, and it was reported on a 1099-NEC form. Turbotax is indicating I qualify for a QBI deduction? Is this accurate?

[ThomasM125]

No! The qualified business income (QBI) deduction would only be available if you had income from running a business, which I suspect is not the case here. The income you received should have been reported on a W-2 form if you are an employee of the company you work for. Since it was reported on a Form 1099-NEC, it is being picked up in TurboTax as self-employment income and that is what is generating the QBI deduction. It would be advisable to indicate that the business does not qualify for the QBI deduction. You will see those questions in the business section of TurboTax after you enter your business income and expenses.

Also, there is a way in TurboTax to indicate that the income should be reported on a W-2 when you enter the Form 1099-NEC. In the section where you enter the Form 1099-NEC, you will see an option to indicate this on the screen that says Does one of these uncommon situations apply?

And on the next screen you can indicate whether or not you need to file Form 8919 to figure and collect unreported social security tax if applicable to you.

If applicable, the income reported on Form 1099-NEC will then be reported as wage income on your tax return and you will pay in the associated social security tax with your tax return. If you don't do this extra step, you may end up pay in self-employment tax which is similar to social security tax, and the income would be reported as self-employment income as opposed to wage income.

[Edited 2/19/24 at 12:30 PM PST] @elsbeth-kane

[elsbeth-kane]

Yes - I think the issue is that I had not been hired yet when they paid out the signing bonus. I received the signing bonus in February and was not hired until July - did not sign a W4 or I9 until July 

[ThomasM125]

I'm sure it created a dilemma for the payroll department, but the correct way to do it would be to have you complete a W-4 as a prerequisite to receiving the signing bonus and then it should have been paid to you as wages with taxes withheld. The way they did it you are stuck paying and additional 7.5% or so for self-employment tax that the company should have picked up. Not to mention the fact that they are not in compliance with payroll reporting requirements and as such potentially subject to penalties from the IRS.

[elsbeth-kane]

It seems if I choose "none of these apply to me" I have to establish a Schedule C and then that seems to auto push the QBI deduction, which I do not want to claim.... is there a way to proceed but decline the QBI deduction on turbotax? I can't find a separate section like the example photo you posted.

[Opus 17]

The correct answer here is that this is NOT self-employment income.  In the 1099 interview there should be a list of special circumstances, and a box for “I received income on a 1099 that should have been on my W-2 from the same employer.”  This will create a form 8919 with code H.  You will pay the employee half of social security and Medicare tax but not self employment tax which contains both halves of this tax.  

however, you should contact the employer first and give them a reasonable chance to correct the w-2 and cancel the 1099.  Save copies of your correspondence in case the IRS asks questions.