IRS memo 1402(c) (1,2)

To enter a 1099-Misc where you are not charged self-employment tax, follow these steps in TurboTax:

1. While in your Tax Home,
2. Select Search from the top right side of your screen,
3. Enter 1099-Misc
4. Select Jump to 1099-Misc,
5. Follow the On-Screen Prompts, until you get to the question that asks, Did the involve work that's like your main job?  Answer, No it didn't,
6. Continue through the on-screen prompts until you are asked this question, Did the involve an intent to earn money?  Answer, No it didn't.

This should take care of you!

The income still needs to be reported on Schedule C as a business.

But if you are POSITIVE it is not subject to Self Employment Tax, then you can go into 'Business Taxes' and make an adjustment to the Self Employment Tax.

Was the income reported in box 3 or box 7 of form 1099-misc?

It is in Box 7.

Since the income was reported in box 7 you must report it on a schedule c and deduct the expense per the directions above.