I am a VOLUNTEER and spend many weekends, at my expense (hotels, gas, food), away from home volunteering my time. The nonprofit I volunteer with has now begun paying me a stipend for my time and expertise. It is not much, basically just enough to cover my expenses. At the end of the year, I received from them a form NEC. When I filed last year, my "losses" were extreme when taking into account mileage travelled, and I don't think I paid any self-employment tax. Does that sound correct? My question concerns this particular scenario again.....at what point and which taxes do I have to pay if I'm classified as an independent contractor (when in actuality, I am not a business but a volunteer!)
Hello carol1912!
Thank you for your question. When you receive Form 1099-NEC, you are considered an independent contractor regardless whether you are registered as a business or not. As an independent contractor, if your business produces an income, you would have to pay self-employment tax (SE tax) which consists of Social Security and Medicare taxes. You figure out SE tax by using Schedule SE for Form 1040. The benefit of being self-employed is you can deduct the employer-equivalent portion of your SE tax in calculating your adjusted gross income (AGI), whereas wage earners who receive Form W-2 cannot deduct Social Security and Medicare taxes.
Since you had a loss on your business, then you have no SE income and you do not owe any SE taxes.
Please refer to the article below for reference regarding incurring a loss on your SE business:
https://budgeting.thenest.com/figure-social-security-tax-3149.html
Please let me know if this answers your questions, or if I can be of further assistance.
Thank you!
Shirleyh88