It is a violation of employment law for your former employer to report severance pay on Form 1099-NEC instead of Form W-2 for wages. Since this should have been W-2 wages, Social Security and Medicare taxes have not been paid on this income. Your employer should pay half, and the other half should have been withheld from your pay. However, by reporting the income on a 1099-NEC the employer is making you responsible for the entire amount of these taxes. You will file Form 8919 making a claim that the pay should have been wages, with the employer paying their half. Your half will be added to the taxes on your return.
To enter this correctly, follow these steps:
1. Under the "Income" tab,
2. Scroll down to "Other Common Income"
3. "Show More"
4. "Start/Revisit" the 1099-NEC topic
5. After entering the form data, continue until you arrive at a page titled "Do any of these uncommon situations apply?"
6. Select the option that reads: your employer reported this income on a 1099-NEC, but it should have been on a W-2
7. Next select the option that reads you received a W-2 and 1099-NEC from this employer
8. The Form 8919 will generate and only your share of Social Security and Medicare taxes will be added to your return.
Note: if you enter this without the correct selections, Schedule SE may inadvertently be added to your return, where the full 100% amount of self-employment taxes will be calculated on the income, instead of the lower 50% amount on Form 8919. You should print the PDF of your return before filing to make sure everything looks correct.
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