I am getting mixed answers on what to do with my 1099-NEC.
I received an Iowa DHS Retention Bonus https://dhsbonusprogram.powerappsportals.com/ reported on a 1099-NEC. I am a preschool teacher. It was not paid by my employer. I did not render any services to the payer. This child care retention bonus is part of the Iowa Worker Pay Program. I have been told I can report this on line 8 “other income” on Schedule 1. I have also been told this will lead to an automatic inquiry by the IRS, since anything reported on line 1 of a 1099-NEC without a Schedule C will be flagged. I don’t see how this is considered self-employment income, but I also just don’t want to deal with an inquiry.
According to this IRS document ( https://tax.iowa.gov/sites/default/files/2023-01/2022%20Expanded%20Instructions_011223.pdf ) an NEC is used for “services in the course of trade or business” and should not be used for “other income not subject to self-employment tax”. (See below for the passages to which I am referring) This would make it seem that this income should not have been reported on Box 1 of a 1099-NEC, but instead Box 3 of a 1099-MISC. The payer has been no help to me with any of my concerns and it would seem there is no chance of them reporting it differently.
Passages from document:
What is NEC? If the following four conditions are met, you must generally report a payment as NEC.
• You made the payment to someone who is not your employee.
• You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
• You made the payment to an individual, partnership, estate, or, in some cases, a corporation.
Payments not reported in box
1. Do not report in box 1:
• Expense reimbursements paid to volunteers of nonprofit organizations;
• Deceased employee wages paid in the year after death (report in box 3 of Form 1099-MISC) (see Deceased employee's wages, earlier);
• Payments more appropriately described as rent (report in box 1 of Form 1099-MISC), royalties (report in box 2 of Form 1099-MISC), other income not subject to self-employment tax (report in box 3 of Form 1099-MISC), and interest (use Form 1099-INT)
