1099-MISC

[Shen924]

Hi everyone,

I received a signing bonus from a future employer and received a 1099-MISC with box 3 filled out. How would I go about in answering the following questions:

Did the Signing Bonus involve work that's like your main job?

Did the Signing Bonus involve an intent to earn money?

Everytime I answer yes to one of these questions it makes it seem like I own a self employment business. Thank you for your help.

[PattiF]

This is considered self-employment income. The company that gave the bonus to you reported it on a 1099-MISC instead of a W-2 where bonuses are usually reported. 

If you received a 1099-MISC, I assume you did not pay any Federal, State, Medicare, or Social Security tax on your sign-on bonus.  While the IRS may not consider bonuses regular wages, they are still regarded as supplemental wages and are subject to Federal, State, Medicare, and Social Security taxes.  Although you're not self-employed, the self-employment entry allows you to enter the income, and the calculation occurs for Federal, State, Medicare, or Social Security tax. 

Since the company issued you a 1099-MISC, you can write off expenses related to the income received.  Were there any travel expenses related to getting the job?

Please see this from TurboTax How are Bonuses Taxed?

[Shen924]

There were no traveling involved.  I won’t start this job for a few months. This future employer is different from my current. How Would I answer to both of these questions?

[Hal_Al]

Did the Signing Bonus involve work that's like your main job?

Did the Signing Bonus involve an intent to earn money?

You answer yes, both questions.  This is an equivalent to a salary bonus. As such, social security and Medicare tax need to be paid, in addition to income tax.  The way you do that is as "self employment tax", by filing Schedule C and Schedule SE

[Shen924]

Even though I have not started the new job (won’t be for a few months) I would have to file it as a self employment tax? I noticed when I answer yes to these questions I owe federal $600 and my state tax income I owe is slightly less. Is this a common theme? Whats the difference between filing for self employment vs other income? 

[GeorgeM777]

Yes, as described in the previous posts, your bonus is definitely income associated with your job.  Thus, when you report this as self-employment income, you will pay income tax and self-employment tax (SE tax is your Social Security and Medicare taxes).  Yes, all those who report self-employment income pay income tax and SE taxes.  

The better option for you would be for your future employer to report this signing bonus on a W-2; however, if they were to do so, the employer would pay their respective share of the SE tax and you would pay your respective share of the SE tax.  Filing as self-employed, you pay both parts of the SE tax--15.3%--in addition to the income tax.  While it is true that you do get to deduct one-half of the SE tax from your income, that deduction only reduces the amount of income subject to tax, it does not reduce the tax per se as a credit would. 

If you were to characterize this income as "other income," (an option we do not recommend) you would only pay income tax at your ordinary rate. You would not pay the SE tax.  Thus, the tax difference between reporting this income as self-employment income versus other income is significant.    

@Shen924 

[Shen924]

Would this bonus also count towards the qualified business income deduction?

[Hal_Al]

Q. Would this bonus also count towards the qualified business income deduction?

A. Yes.  Almost all Schedule C income qualifies.

[Shen924]

Ok, I wasn't sure since I am a physician currently still in training and won't be starting until July. I figured this incentive sign on bonus didn't count towards the qualified business income deduction as this bonus would count as a "wage salary", but I can still claim it?

@Hal_Al 

@GeorgeM777 

@PattiF 

Thank you everyone for the time and help. This is the first time I had to deal with this so this is all very confusing and stressful.

[PattiF]

Yes, you can still claim the qualified business income deduction. As Hal_Al says almost all Schedule C income qualifies.

@Shen924