1099-NEC Bonus from Work

[Talk34384]

I received a 1099-NEC that is for the gift cards I received from work for meeting selling/performance goals. The payer listed on the 1099-NEC is not my direct employer but owns the business I work for. Yes clearly a loop-hole they are using, but how do I report this on my taxes? I do not have a business and am not self-employed. Last year we were told to report it as other income, but that may have been the wrong advice. How do I report this without creating a business?

[Vanessa A]

To enter the 1099 NEC as non-self-employment income take the following steps:

• Income
• 1099-Nec under Other Common Income
• Enter the information from the 1099-NEC
• Continue through to Does one of these uncommon situations apply?  Select "this is not money earned as an employee or self-employed individual, it is from a sporadic activity or hobby (this is not common)

[Opus 17]

This is tricky.  I don't have enough information to agree with the expert's answer.  Let me give you two general rules/situations.

A. In general, anything your employer provides as compensation for services performed must be reported on your W-2 as wages, subject to social security and medicare tax withholding.  If the employer pays a bonus with a 1099-NEC, there is a box to check for special circumstances for "I received a W-2 and a 1099 from the same employer and this 1099 should have been on my W-2." Turbotax will prepare a form 8919 with code H, and you will pay the employee half of social security and medicare but not both halves as with self-employment tax.

B. In some jobs, mainly sales, the manufacturer may offer incentives separate from the employer.  These may be called SPIFFs (Special Performance Incentives for Field Force).  For example, you work for Bob's Appliance Store, and for every Maytag washer you sell, Maytag sends you a direct incentive payment that is separate from and in addition to any payment or wages or commission that Bob pays you.  SPIFFs are not self-employment wages (because you don't work for Maytag, in this example). You report this as miscellaneous or other income, so the "hobby" treatment suggested by the Expert is correct.  Since this was reported on a 1099-NEC instead of a 1099-MISC, you may get an automated letter from the IRS asking you to pay the SE tax, you can reply with an explanation and documents proving your argument.

However, the formulation of your question "The payer listed on the 1099-NEC is not my direct employer but owns the business I work for. Yes clearly a loop-hole they are using," worries me that this might be a situation of tax fraud rather than a legitimate SPIFF situation, especially if the same business owner is simply using a different "front" business to issue the incentives.  I don't have any additional suggestions, other than that you might want to consult with a professional.  If this should be wages, you are being deprived of social security credits, which may impact your future benefits.