1099-MISC - unusual tax situation (shared contest prize)

[Anonymous]

Hi,

I'm a bit lost on how should I handle my 1099-MISC form and I'm trying to find the best way of dealing with the following situation:

I was a part of the team which won cash prize, among others. However, in the team there were more than 10 people and I was the only person from US (the rest of the team members were from Europe). All the cash prize went to my bank account under my SSN. However, I'm not planning on leaving any portion of it and 100% will be transferred to Europe. I'm aware that we need to pay a portion of the taxes in US. However, I'm also aware that it is possible to declare that I'm receiving 0% of the prize (1096) and it won't add into my income (so I won't need to pay tax from it).

How can I solve this situation using TurboTax?

Thanks!

[KathrynG3 · Accepted solution]

Reporting your cash award and the offsetting distribution via Other Miscellaneous Income is acceptable to the IRS.

To do this in TurboTax:

1. From the left menu, go to Federal and select the first tab, Wages & Income
2. Add more income by scrolling down to the last option, Less Common Income, and Show more
3. Scroll down to the last option, Miscellaneous Income, 1099-A, 1099-C and Start
4. Choose the last option, Other reportable income and Start and Yes
5. Enter the applicable description and amount and Continue
   • First, enter your Form 1099-MISC as received. It is essential that the full amount be entered.
   • Next, enter an adjustment to reflect the amount that was sent to your teammates as a negative amount up to the total amount of Form 1099-MISC as received.

[Edited 01/31/2021 | 9:11 AM PST]

@Anonymous 

[Anonymous]

Hello @KathrynG3,

Thank you very much for your answer (and very useful details!). May I ask one more question? It sounds like I don't need to have any extra form (like 1096) and form 1099-MISC is enough. Do I need some kind of 'proof' for such adjustment? I'm planning to send a wire transfer to other participants in the next few weeks which is 2021 and the prize was received in 2020 (around October / November timeframe). Would this be a problem from IRS perspective?

Best regards!

[KathrynG3]

No, you do not need Form 1096 or any proof sent to the IRS. Keep related records for your own files. If these people are not US Citizens and are not filing taxes in the United States, then they would not receive Form 1099-MISC. 

If they would be filing in the United States, then they would need Form 1099-MISC if they won more than $600 each for the year they received it. Tax returns are commonly done on the cash basis. However, if you received the funds in 2020, then you have constructive receipt and should include the prize money on your tax return.

You're welcome; we are happy to help! 

@Anonymous 

[Anonymous]

Thanks again for your reply @KathrynG3. I have just one last quick question. My understanding is that if I'm not planning to keep any portion of the prize and 100% of that cash I'm wiring to Europe, I don't need to pay any tax from it since adjustment will be exactly exactly the full prize money reported in 1099-MISC. Does this sound correct?

[Cynthiad66]

Yes.  No taxes because you have no income from this transaction once you complete the transfer.