Employer pays employee a performance incentive outside of payroll. Records payment with 1099 misc. Why does this trigger a schedule C filing?

An employer cannot pay you an incentive outside of payroll.  The fact that you state this was for high performance during regular hours, excludes any type of exception that could be claimed for giving you a 1099-Misc as this bonus is directly related to your job for the employer. You need to contact your employer and get a correct W-2.  An employer should not report bonuses or any types of payments on the 1099.  All income from an employer needs to be reported on the W-2.  Bonuses are subject to FICA taxes which the employer is responsible for half and they should withhold from your bonus the other half. 

 If they will not, then you would need report the income by selecting the following:

 

1. Income
2. Miscellaneous Income
3. Other Income not already reported on a Form W-2 or 1099
4. Yes, to did you receive any other wages
5. Continue through until you get to Any Other Earned Income and select Yes
6. Select Employee compensation that was not reported on a W-2
7. Continue through answering the questions.  Put a checkmark in the box that says you received a 1099-Misc
8. Select letter H- I received a form 1099-NEC that should have been submitted on a W-2

TurboTax will then include form 8919 with your return for uncollected Social Security and Medicare wages.  This will have you pay 7.65% instead of 15.3%.