1099-MISC for Internship income

[bjeppesen]

My son worked for a company as an intern in 2020. Instead of being hired directly by the company, he was hired by what is essentially a company who provides contract labor. This second company is who paid him and they provided a 1099-MISC for his annual income. He only had one box (3) with any amount shown. His taxes are showing that he's "self-employed" and has to pay the self-employment tax, which is a huge amount relative to his income. So, is he actually considered self-employed and needs to pay this, or is there a different way to show this so he doesn't get hit with this self-employment tax? 

[PattiF · Accepted solution]

Yes, there is a different and correct way to report this income so that it is not considered self-employment income. Income reported in Box 3 of a 1099-MISC is considered "other income".  

Here are instructions on how to delete the original entry of the 1099-MISC and re-enter in the appropriate section. This is for TurboTax Desktop.
 

Step 1.  Delete the 1099-MISC.

1. Go into Forms Mode by clicking on the Forms icon in the top right of the blue bar. 
2. In the Forms in My Return list on the left, click on the form you wish to open and delete.
3. Click on the Delete Form box at the bottom of the screen.
4. To return to the interview, click on the Step-By-Step icon in the top right of the blue bar.  

Step 2.  Reenter the 1099-MISC.

You can enter the 1099-MISC in TurboTax as "Other Common Income," which is reported on line 8 of 1040 Schedule 1 and will not generate Schedule C or SE tax.  Please use the following steps:

1. Click on Federal > Wages & Income.
2. Scroll down to the Other Common Income section. 
3. Click on the Start/Revisit box next Form 1099-MISC. 
4. On the screen Did you get a 1099-MISC?  click on the Yes button.
5. On the next screen, Let's get the info from your 1099-MISC, enter the information from the 1099-MISC.
    
6. On the following screens, answer the following questions:
   • Did it involve work that's like your main job? No.
   • You got it in 2020
   • No, it didn't involve an intent to earn money

 7.  Continue through the rest of the interview screens. The income will appear as Other Income.

[bjeppesen]

Great reply and very detailed. So this is the correct way in the eyes of the IRS as well, right? He's not self-employed, so no need for the Sched C & SE tax? Just want to make sure we're looking at it in the proper way, and then your detailed instructions on how to do it will be very helpful

[JotikaT2]

As long as his intent was not to run a business for a profit, then yes, this would be the correct way to report the income.  

If, however, he intends to continue in this line of work and industry practice is to be hired as a contractor, then he would report this income as self-employment income as this would be his business.

Please see the attached link for more information to help you determine if the activity was actually a business or not.

Business or hobby