1099-NEC for Severance Pay?

Forum|Forum|5 years ago
January 24, 2021
2 replies
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I received a 1099-NEC (?) for severance pay from a previous employer. How is this taxed?

Opus 17

Level 15

Severance pay should be reported on a W-2 along with regular wages. By reporting it on a 1099-NEC, the employer is trying to make you pay both halves of Social Security instead of only the employee half, whether this is intentional or out of ignorance.

I believe in TurboTax when you enter the 1099-NEC, there is a series of checkboxes for special circumstances, and one of the checkboxes says something like “this should have been on a W-2“ or something like that. If you check that box, TurboTax will fill out a substitute W form for you, and you will pay regular income tax as well as the employee half of Social Security and Medicare, but you will not have to pay the employer half of Social Security and Medicare. Depending on the size of the severance pay, the fact that there was no federal or state tax withholding will almost certainly decrease the refund you would normally expect or increase the amount of tax you owe. If TurboTax indicates that you owe a penalty for underwithholding, decline the offer to calculate the penalty and add it to your payment. If you owe a penalty, the IRS will mail you an assessment later, and when that happens, you can appeal based on the circumstances.

If you can’t figure out how to report this 1099 as wages that should have been on a W-2, post back here and I will double check my own copy of the program to see exactly where it is.

mc013

Level 2

Good Morning - I received a 1099-NEC from my former employer as a severance payment. It was not included on my final W2 and I don't have a business to report or enter so how should I enter on my taxes. Thank you

Opus 17

Level 15

@mc013 wrote:

Good Morning - I received a 1099-NEC from my former employer as a severance payment. It was not included on my final W2 and I don't have a business to report or enter so how should I enter on my taxes. Thank you

All employee compensation should be reported on a W-2, and the employer is supposed to pay their half of social security and medicare tax. You are responsible for your share of social security (6.2%) and medicare (1.45%) as well as income tax, of course. Follow the procedure below to report the income as wages that should have been included on your W-2.

This information is entered in a different area of the program then regular W2s. It is found under Federal (or Personal) Taxes -> Wages and Income -> Less Common Income -> Misc Income -> Other Income Not Already Reported on A Form W2 or Form 1099

The quickest way to get there is to use the search feature in the top right hand corner (magnifying glass icon).

Search for "8919" and then click the jump to "8919" link (if you are just logging into your account, make sure you click the Take Me to My Return button before performing the search).
You will get sent to the Other Wages Received Page
You will click Yes and proceed until you get to Any Other Earned Income
Click Yes to this question because you have other income that should be on a W2
Leave check next to employee compensation that was not reported on a W2
Next screen will be Employee Compensation that was not reported on a W2
This screen will explain Form 8919 and SS-8. You will select reason code H for form 8919, and you do not need a form SS-8 in your situation.
When the program asks for "total compensation" from this employer, only enter the compensation not already included on a W-2. (Turbotax is a bit confusing on this point.)

DanielV01

Level 15

The actual Form @Opus17 is referring to is Form 8919. The following link will give you instructions on how to find this form: Solved: Where do I enter Form 8919 - TurboTax

The answer above refers to Form SS-8, which will not be required for you. You will see an option that you received both a W-2 and a 1099 from the same employer. Select this option.

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