1099-NEC for dependent children

[richnuthouse]

My 22 year-old child is a full-time student and my tax dependent. She worked for a small company (no HR department or formal accounting) during the summer that has given her a 1099-NEC for wages of ~$6,000. Turbo Tax seems to considering the income as "unearned income" and forcing the use of form 8615, including applying my tax rate to her income. How should this "self-employment" income reported on the 1099-NEC be reported to avoid getting hit with my tax rate as if it were unearned income?

[LenaH · Accepted solution]

In order to eliminate the 8615 and report her 1099-NEC as self-employment income, you must answer the questions following the entry of her 1099-NEC so it flows to a Schedule C (self-employment income). 

Please follow the steps below: 

1. Open your return.
2. Search for 1099-NEC with the magnifying glass tool at the top of the page.
3. Click on the Jump to 1099-NEC link at the top of the search results. 
4. Click Edit next to the 1099-NEC. 
5. Continue past the information entered.  
6. On the page titled Guess what? You can deduct expenses for the example work choose Yes, I have expenses to deduct. 
7. On the page titled Self-employed 1099-NEC Income, you can add a new Schedule C business on this screen.

To confirm your 1099-NEC was linked to your Schedule C, please follow the instructions below:

1. Open your return.
2. Search for Sch C with the magnifying glass tool at the top of the page.
3. Click on the Jump to Sch C link at the top of the search results. 
4. On the page titled Your 2020 self-employed work summary, you should see the 1099-NEC listed with the corresponding amount. 
5. Click review next to the income from your 1099-NEC. 
6. Follow the on-screen instructions on the following pages. 

[EllieWS]

It looks like I can only add 1099-NEC under either my husband's or my name on Turbo Tax. The 1099-NEC was belong to my high school son who made money out of reffing sports games last year. How should I add under his name? Based on what you said, we have to create a business, so it's him?

[EllieWS]

It looks like I can only add 1099-NEC under either my husband's or my name on Turbo Tax. The 1099-NEC was belong to my high school son who made money out of reffing sports games last year. How should I add under his name? Based on what you said, we have to create a business, so it's him?

[DawnC]

You do not add your son's earned income on your tax return.  He has to file his own tax return and since the income is from a 1099-NEC, he will include a business Schedule C on his return.  You can still claim him as a dependent on your tax return.   But when he completes his tax return (or you do it for him) make sure that the ''someone else can and will claim me'' boxes are checked.   This will ensure no one's return gets rejected.    @EllieWS

The income he earned while refereeing games is considered self-employment.   He is, for tax purposes, the owner of his own business.  He can deduct expenses related to that income on Schedule C.   When setting up the 'business' in TurboTax, he can use his own name and address for the business which keeps it simple.   

Even if you're a dependent, you'll generally need to file your own 2020 tax return if:

• Your earned income (money you made by working) exceeds $12,400
• Your unearned income (interest, dividends, capital gains, etc.) exceeds $1,100
• Your business or self-employment net income (gross minus expenses) is at least $400 
• Your gross income (earned plus unearned) exceeds the larger of $1,100 or your earned income (up to $12,050) plus $350

[EllieWS]

Thank you, Dawn! Now I think I understand. @DawnC 

One more follow up question for you to make sure that I understand this correctly. 

I later found out a place to enter Child's income, but for some reason it said that I didn't need to report that as it was below $1,100. But if I understand you correctly, income from1099-NEC is considered as self-employment, so if the net income is over $400, my son should file a separate report by himself, right? But when his gross income is less than $1,100, even if his self employment net income is more than $400, he doesn't need to file his own tax return, right? @DawnC 

[DawnC]

The place you found to ''enter your child's income on your return'' is only for unearned income, not for earned income.  If the unearned income was less than $1100 and that was the only income (had no self-employment) you would not have to report it on any tax return.  

But since self-employment requires a tax return, he should include all his income, both earned and unearned on his own tax return.   

You were good there until the last sentence.   If his gross income is less than $1100 and that was his only income, he would not need to file.   But if he has more than $400 in self-employment, he still has to file a return.   Self-employment is earned income.      @EllieWS

[EllieWS]

Thank you for your clarification, Dawn! Very helpful. @DawnC 

[jhollifi]

Can mileage be deducting for transporting minor child?  Child is a model and we drive quite a few miles to get her to her photoshoots.  The vehicle is not hers so not sure if deducting mileage is possible.

[Vanessa A]

No, she cannot deduct the mileage on her return for you transporting her to photoshoots and such.  She would have to own the vehicle to deduct mileage. 

You cannot deduct the mileage on your return either as you are not earning the income. 

[jhollifi]

Thank you.  What about hotel stays?

[GeorgeM777]

To follow-up on the comments from @Vanessa A, the hotel stays would not be deductible by you either because it does not appear to be your business expense, but rather a business expense belonging to your minor child.  If you minor child filed their own respective return, then your minor child could include their business expenses on their respective return.  Those expenses could include the mileage and hotel stays provided the minor child paid for those expenses in connection with the modeling work.  

@jhollifi

[jhollifi]

Thanks for the follow-up information.  My minor child will file her own tax return.  Just wasn't sure if mileage could be deducted since she didn't own the vehicle.  As far as hotels, I paid with my credit card but reimbursed those expenses from my child's income received.

[Vanessa A]

The only way she can claim the mileage would be if she paid you for the mileage, then you would need to count this payment as income and report it as income on your return. If she is paying for gas or tolls, then she can claim those expenses, but for actual mileage, she needs to own the vehicle.

It may be a good idea to open an account for your child with a card attached so you can pay the expenses such as hotel rooms and fuel costs directly from her account.  That way you have all expenses and income in one account to make it easier for tracking purposes and the waters don't get muddied.

[Anonymous]

I just want to make sure I fully understand this based on your previous responses.  My minor earned $1875 for being a referee (received a 1099-NEC for this amount) and earned $3912.75 on a W-2 from a second job.  She will need to file her own return (I already claimed her on mine so I will need to note that) and follow prompts for self employeed?  It just seems very high for a 16 year old to have to pay over $200 in taxes AND pay almost $90 for filing.  Just want to make sure we are doing this correctly.  Thank you