1099-NEC confusion

[The Makeshift Tax Dude]

I have a child that has received a 1099-NEC for working at a outreach center packaging food.  She is a full time student in college.  She just turned 21 this month.  I am currently filling out her tax forms and it is now saying that she owes approx. $300 as a self-employed business owner????  Why is my software labeling her as a business owner just because the place where she worked for the summer reported her information on a 1099-NEC?  IT will not allow me to place her on my taxes because this is considered "Earned Income"  Please give me some insight on how to complete her/my tax forms where it's not asking her to pay taxes.  Her overall income is under $5000.

Thanks in advance for your help!

[Mike9241]

being paid for services performed is either wages for which a taxpayer receives a W-2 or is considered the conduct of a trade or business for which she would owe SE tax and receive form 1099-NEC. 

the question we can't answer is whether she was an employee for which Medicare and Fica taxes would have been taken out of her paycheck and she would have gotten a W-2 or she was properly classified as an Independent Contractor   - why she got form 1099-NEC.

see this link for questions that can be used to determine her status. she can file form SS-8 with IRS to determine her status - not required. if you/her conclude that she's an employee the IRS requires her to contact the company to issue a corrected 1099-NEC and a W-2.  only if the company refuses can you use form 4852 to report her income as wages. taxes, penalties and interest will be assessed if the IRS determines that she was correctly classified as an Independent Contractor.     

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-o...

https://www.irs.gov/pub/irs-pdf/fss8.pdf

a W-2 is also earned income so no matter which, she can't go on your taxes. 

[fanfare]

when you get a 1099-NEC, you must use Schedule C.

Enter her full name as the business name.

Just enter it and follow the TurboTax processing, because that's how our tax system works.

She will file Schedule SE and write a check to US Treasury for $300.

[Hal_Al]

If you "go the SS-8 route", be advised she still has to pay the employee share of FICA tax  ( a little over half of that $300) on form 8919.

There is a way to avoid the $300. 

But, The IRS considers anything on a 1099-NEC to be self employment income. TurboTax (TT) aggressively steers you in that direction. If you try reporting 1099-NEC income as anything else, your chances of hearing from the IRS are  high.

After entering your 1099-NEC, you will encounter a screen titled "Does one of these uncommon situations apply".  Check the box "This is not money earned as an employee or self employed individual; it is from sporadic activity or hobby".

Checking that box will put the income on line 8 of Schedule 1 as "other income" .

Apparently this is legal, the key being that it was a one time gig. Sloan v. Commissioner [Dec. 44,879(M)], T.C. Memo. 1988-294.  

See http://www.journalofaccountancy.com/Issues/2009/Jul/20091639.htm

 The ability of a parent to report their dependent's income, on their return, is more limited than just earned income. If her only income is from interest and dividends, Alaska PFD or capital gains distributions shown on a 1099-DIV, there is a provision for entering it on your return, using form 8814.