1099-NEC and 1099-MISC Forms = Self-Employment??

[TruchanFamily]

Hello!  We have used Turbo Tax for many years--and now our children use it for their taxes.  I have two questions that are sort of related:

1) My wife is a public school teacher.  She was elected President of her district's teacher union.  When she gets paid her annual stipend, it is reported on a 1099-MISC.  I just want to double check.....in the eyes of the IRS, they are saying that she is Self-Employed because of this stipend.  Is that correct?  Does that mean that she can deduct any expenses related to that job?

2) Each summer, my wife has been accepted to a teacher-program that reimburses her a lump sum of money (instead of for individual expenses.  They always report the pay on a 1099-NEC form.  This also seems to have the same effect of saying that she is "Self-Employed".  Again, is that correct?  Does that mean that she can deduct any expenses related to attending that program?

[RSUMan]

1.  The union stipend is miscellaneous income that gets reported as Other Income and is not subject to Self Employment Tax.

2.  The summer teacher program is self-employment income and should be reported on Schedule C.  She should keep track of expenses incurred in connection with the income and enter those expenses on Schedule C.  She will incur self employment tax on the net earnings from the summer teacher program.

Also, thanks for being our customers!

[TruchanFamily]

Thank you for the response.  Would you happen to know why Turbo Tax combined BOTH 1099s from the Schedule Cs (from the 1099-NEC AND the 1099-Misc), listed them as a combined total on a Schedule SE Self-Employment Tax form, and charged her taxes on BOTH amounts this past year??

[RSUMan]

You have to code the union stipend as sporadic income.

You cannot let that Form 1099-MISC be associated with the teaching Schedule C.

When entering the 1099-MISC, there will be questions about its nature.  You indicate it is sporadic; it is not part of her main job; it is a representative position with another entity that may in fact change. 

[TruchanFamily]

Wow.  Thank you. 

1)That means that she has been paying self-employment taxes on that stipend for two years now.  I wish Turbo Tax could identify it as you said "sporadic".  That is not an option.  I clearly stated that it was not a part of her main job.  What a waste of money.  So, what you are saying is that she should pay normal taxes as Other Income, but she should NOT be paying self-employment taxes on that amount, correct? 

2) So in the other case I mentioned (the 1099-NEC), she SHOULD be paying normal taxes AND self-employment taxes on that reimbursement--even though it isn't for her main job and is also sporadic?

[RSUMan]

Yes, that is my professional opinion.

The preparer of the "information return" makes a determination of the character of the income.

Form 1099-MISC and Form 1099-NEC are what we call information returns; they are information sent to IRS so IRS can track the receiver of the payments.

The NEC form was specifically promulgated to make sure that income was subject to the self employment tax; it is a relatively new form.

The union is in my opinion correctly issuing a MISC.

Because the teacher-program happens every year and they are bringing in educators for an ongoing purpose, the payer of those monies looks at each teacher as an independent contractor and issues a Form 1099-NEC.  Most payroll accountants would advise the entity running the program to do just that.

Do not let the MISC flow to the Schedule C this year, call in and get an Expert to walk you through the MISC entries while sharing screen and we will make sure the MISC does not associate to the Schedule C.

If you used TurboTax last two years, there is no cost to amend a tax return.

If you believe the dollars are significant, call in and work on amendment.  NOTE:  always save a ".taxfile" before commencing an amendment process.

[TruchanFamily]

Thank you for much for your advice and the help. 

[RSUMan]

Thank you so much to the family for being our customers!  Tell your spouse that I was lucky to have many great teachers that built the foundation that got me through law school!

[RSUMan]

[RSUMan]

I posted a picture above of the interview question you should see when entering a Form 1099- MISC in the Other Common Income section.