1099 misc form /FICA question

[pfeifwa1]

i received 1099 misc form from an investor (not my employer)  for my assistance with the sale of a company. the income is in box 3. therefore no FICA. is this correct?

[DoninGA]

Income received from a client is not subject to FICA taxes.

[DoninGA]

However, if the amount is $400 or more then you have to report the income on Schedule C as self-employment income.  The net self-employment income is subject to Self-Employment taxes which is the employer and employee portion of Social Security and Medicare taxes.

[pfeifwa1]

thanks Donin.  it was more than $400.  $100k.  so am i reading your reply correctly by stating that if less than $400 it is not subject to FICA but if more than $400 it is subject to FICA?

[DoninGA]

If the net self-employment income is less than $400 then there would not be any Self-Employment taxes to pay.

Since you received a large amount of self-employment income you should consider paying estimated taxes.

Go to this IRS website for the Form 1040-ES which will include worksheets to estimate the taxes owed - https://www.irs.gov/pub/irs-pdf/f1040es.pdf

IRS website for self-employment information - https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center

[pfeifwa1]

thanks again.  to be crystal clear.  the 1099 misc was box 3.  and i was told there are not self employment taxes associated with this.  you have stated if less than $400 there are none but this payment was $100k.  please advise. 

[DoninGA]

FICA is deducted from earned income from wages.  You did not receive wages.  You received income from a client who paid you for services rendered.

You report this income on a Schedule C which is included with your personal tax return, Form 1040.  The net income from your self-employment is subject to Self-Employment Taxes.  

The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

[rjs · Accepted solution]

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@pfeifwa1 wrote:

the 1099 misc was box 3.  and i was told there are not self employment taxes associated with this.

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@pfeifwa1 

Who told you that? "Was told" is never a good source of tax advice. This whole situation sounds like someone is trying to help you cheat on your taxes.

It looks like the 1099-MISC is improper. You were paid for services that you provided. That is unquestionably self-employment, and is subject to self-employment tax. Form 1099-MISC box 3 is not supposed to be used for payment for services. The payer should have issued a 1099-NEC, not a 1099-MISC.

The simplest way for you to handle it is to simply report the 1099-MISC income as self-employment income. Then at least your tax return will be correct.

I gather that you are talking about a payment that you received in 2022. If so, it's too late to make an estimated tax payment to cover the tax on it. Just file your 2022 tax return and pay the tax due.

Because of the amount of money involved, you might want to consult a local tax professional, rather than relying on anonymous advice that you get on the internet.