I have a 1099-NEC from the state of Iowa for a retention bonus that was given to all teachers. This is supposed to be state tax free. How would I add this to my return?

[mamabearg2002]

When amending the return, turbotax only gives me the option to add a business and count this as self employment tax. This was paid to us by the State of Iowa not any specific business, so I'm not sure how to add this correctly. Thank you!!

[MonikaK1]

The Iowa teacher's retention bonus is an unusual situation in that you are issued a Form 1099-NEC which designates it as self-employment income, though it is associated with employment as a teacher.

Please see the discussion in this thread for more information and options from several experts and experienced users.

By entering this income as self-employment and creating a Schedule C, you would pay self-employment tax instead of an employee share of Social Security tax. You would also be entitled to deduct any "business" expenses associated with this income. If you don't report the income this way, you may receive a notice from the IRS as their information return matching program will be looking for the 1099-NEC.

See also this TurboTax article regarding Form 1099-NEC.

See here for instructions from the State of Iowa regarding subtractions from income allowed up to $1,000 for 2022.

In TurboTax, in the Iowa return interview, answer "yes" to the question "Do you have other income?"

The next screen will contain a list of Other Income items. Enter the teacher retention payment in the box provided for "Premium pay and retention bonus ".

[mamabearg2002]

Thank you so much for the info!!! Would you by chance know how to do this when amending your return through turbotax? I'm not sure how to get to just the "Iowa" portion, unless I gotta do that a different way.

Thanks again!

[ErnieS0]

If you are using TurboTax Online, here’s how to amend Iowa:
 

1. Tap State Taxes
2. Then tap Your State Returns
3. On “Status of your state returns” select Iowa
4. On “Do You Have Any Other Income?” select YES
5. On “Enter Your Other Iowa Income” enter your subtraction in Premium pay and retention bonus
6. Continue until you see the screen “Change a Previous Iowa Return?”
7. Tap Amend my 2022 return and follow the screens

[mamabearg2002]

Thanks again!!! I have one last issue haha. When attempting to enter the $1000 in the "Premium pay and retention bonus" section, it says the maximum value is 0 and won't let me continue. I can put -1000, but I'm not sure if that is correct?

You guys are very helpful, I've been stressing over this for a while now!

[ThomasM125]

Yes, you put in a negative amount, since the message says the maximum value is $0. To be less than $0, the amount needs to be negative.

[mamabearg2002]

Awesome, I've got it entered and ready to mail the amendment to the state! I'm sort of confused at how this works, because it seems to have increased my state tax I'm getting refunded to me and my federal tax did not change, but I know next to nothing about how these retention bonuses work so I guess if I get audited and need to pay more federal tax I'll deal with it when it happens, haha!

[DaveF1006]

Your federal return was not impacted by this change since you entered the negative adjustment suggested by ThomasM125 in your state return stemming from the tax advice given by ErnieSO. It will change on the state return but not on the federal return. It remains taxable income on the federal return.

@mamabearg2002 

[Ashel56]

If we report this retention bonus as self-employment income (since it is reported on a 1099-NEC) and we take the -1000 on line aa of the "Other Income Statement Line 14", we have a negative number reporting on line 14 for the total. It is negative because the retention bonus isn't reported on the Other Income Statement, but instead on Schedule C. Is this going to be a problem? Should there be a negative number on line 14 of Form Iowa 1040?

[DawnC]

Yes, you can have a negative on Line 14.   It is offsetting income you have reported on Schedule C - which was already included (and taxed) with both your federal and IA state returns.  It is no problem.  

From the Iowa Department of Revenue -   Line 14  Subtract to the extent included, up to $1,000, the amount of:

1. Premium pay received by a certified peace officer who was designated by the governor of the State of Iowa as an eligible worker.
2. Premium pay received by a correctional officer or medical staff member at a correctional facility who was designated by the governor of the State of Iowa as an eligible worker.
3. Premium pay received by a teacher employed by an independently accredited school or a teacher employed by the State of Iowa who was designated by the governor as an eligible worker.
4. Teacher retention payment received by a teacher that was funded from money received by the State of Iowa from the elementary and secondary school emergency relief fund pursuant to the federal Coronavirus Response and Relief Appropriations Act or the American Rescue Plan Act of 2021.
5. Teacher retention payment received by a teacher employed by a private school or specially accredited school, which was funded from the private sector worker premium pay program administered by the Department of Education that was funded from the State of Iowa money.
6. Recruitment and retention bonus received by a child care worker through the recruitment and retention bonus program administered by the Department of Human Services.

@Ashel56