Code section 139 allows a business to make non-taxable disbursements to employees affected by a disaster or in your case, by the Covid-19 pandemic.
You would simply enter the expenses as Other Expenses on your business income tax return and keep documentation supporting their qualification.
You can learn more about this here:
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I received a qualified disaster relief payment from a not-for-profit (not an employer), which I gather is non-taxable. However, they issued a 1099-MISC, so I need to report it somewhere. How do I do this on Turbotax to ensure I am not taxed?
If the income is not taxable then you will report the income in TurboTax and then do an entry to back out of the income by entering it as a negative amount.
Enter the income in Federal, Wages and Income
Less Common Income
Other Reportable income
Your first entry will be the 1099-MISC fields
Then make another entry with the same information and label it "Cancel Out Tax on 1099-MISC"
In the second entry, put the same amount of money but put a minus sign in front of the number so it will be negative and cancel out the taxes on the 1099-MISC.
Qualified disaster relief payments include payments made to an individual for “reasonable and necessary personal, family, living or funeral expenses as a result of a qualified disaster.” It also includes payments made on behalf of the individual.
I followed your instructions, but I had two issues:
1) My refund stayed the same after I entered the negative 1099. If it properly zeroed out the positive 1099, the refund should have gone up.
2) It is requiring me to use the TIN for the negative entry. Should I use the name and TIN of the not-for-profit that issued the 1099-MISC?
3) Won't the IRS see the negative 1099-MISC and immediately want to document this or audit my return?
If you were not seeing an increase in your refund although the taxes were canceled out on your 1099, and you can verify this, it could be due to other factors on your return. You can check your 1040 to see if there are any limits on your refund, including the 1099. Using the tools menu, you can choose "print" and then you can see your 1040.
Here is a TurboTax article about boosting refunds
And if you would like assistance reviewing your tax return to see how the refund is being calculated, you can request a review. Here is a link to show you how.