1099-NEC for Teacher stipend/salary supplement, why is it making me do a Schedule C when I am not self-employed

[Ashel56]

I received a 1099-NEC for a teacher salary supplement/stipend. I am not self-employed. This was not made from work hours and was paid by a different entity that is not my employer (school at which I teach). When I enter the 1099-NEC, it prompts me to make a Schedule C for a self-employed business. I am not self employed nor do I have a business. I do not know how to proceed. Is there a box I should be checking that would fix this issue and be what I am correctly supposed to do? 

[KrisD15]

The IRS brought back Form 1099-NEC to be used only for Self-Employed Taxpayers. 

You'll have to get someone to correct that form to a 1099-MISC, paper-file, or enter it as a 1099-MISC into the program. The IRS may question that.

There is no way to proceed with a 109--NEC without claiming Self-Employment in TurboTax. 

"Beginning in the 2020 tax year, Form 1099-NEC is the Internal Revenue Service (IRS) form used by businesses to report payments made to independent contractors, freelancers, sole proprietors, and self-employed individuals."

About 1099-NEC ​​​​​​​

[Ashel56]

I have checked with the place that issued the 1099-nec and they can not amend it to a 1099-misc under new tax laws. Does this mean I must “make up” a business and schedule C in order for this to be accepted by the IRS? I don’t want anything to be questioned. 

[ColeenD3]

Typically a stipend is not self-employment income. If they are considering this as compensation that is not employee wages (since a different entity is paying you, you are not their employee), you may need to file Schedule C. Basically, if you do not get a W-2 as an employee, you are, by default, self-employed.

You would be able to take all expenses for this income. Your normal $250 allowance for what you paid has now become unlimited. 

 Qualified expenses are amounts you paid or incurred for participation in professional development courses, books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom. For courses in health or physical education, the expenses for supplies must be for athletic supplies. Qualified expenses also include the amounts for personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of coronavirus. This deduction is for expenses paid or incurred during the tax year.

Qualified expenses

[Ashel56]

If I make a Schedule C, it asks me a lot questions about my “business”. I don’t know how to answer these, as I do not have a business. What should I write as the date the business was started? Can the business name just be my name? Is the business address my home address? I also don’t have any expenses directly related to this stipend, so I do not believe that helps me in any way. 

[Vanessa A]

Did you perform some kind of work to receive this stipend or is this like an insurance policy or something for time when you are not working?

[Ashel56]

No. This is not for any extra hours of work done as a teacher. It is simply a salary supplement offered by an organization to help teachers with lower pay, for retention purposes, and to incentivize these teachers to obtain more education credits. This was formerly reported as a 1099-misc, but with new tax laws the entity issuing the salary supplements is required to file it as a 1099-NEC. 

[Vanessa A]

So you will not report this as income from self-employment since it is not for any work you are doing and it is purely supplemental.  To report this income select the following:

• Income 
• Scroll down and click Show More next to Less Common Income
• Click start next to Miscellaneous Income
• Continue through to where you see "Any other taxable income"
• Enter your other taxable income and the description
• Then continue

You can also delete the schedule C by clicking Tax Tools>>Tools>>Delete a form and clicking delete next to the Schedule C

You should keep the 1099-NEC with your tax records as you will not be entering that form specifically on your return, but you will still account for the income on your return. 

[Ashel56]

I was told this method of filing it under misc income would make the IRS question it. There is an option to click after entering the 1099-NEC that says “This is not money earned as an employee or self-employed individual, it is a sporadic activity or hobby”. By checking this, it categorizes the income as “other income” and does not prompt me to start a Schedule C. I do not know if this would apply to my situation. 
I was also told that the Schedule C ensures that all portions of the Medicare and SS that would normally be paid for by the employer and employee are accounted for. Basically, making me pay twice. 
I found this information “If you work for an employer, you and your employer each pay a 6.2% Social Security tax on up to $147,000 of your earnings. Each must also pay a 1.45% Medicare tax on all earnings. If you're self-employed, you pay the combined employee and employer amount.” 

If the IRS is saying that by having the 1099-NEC, I need to make a Schedule C to ensure that both payment are made, I’m unsure that this can be filed under Misc. income.

Another forum with a similar situation brought this to light. It just all seems rather confusing for a simple salary supplement/stipend.

[ThomasM125]

Since the payment is associated with your profession as a Teacher, it would likely be considered wage or self-employment compensation that is subject to social security (self-employment) tax by the IRS. It is true that you will be subject to twice as much social security tax as if the income was reported on a W-2 form. 

The IRS will likely look for the income to be reported on a schedule C since it was reported on a form 1099-NEC. So, you may get an inquiry from them down the road if you report it otherwise on your tax return.

[Ashel56]

Can anyone give advice on how I should fill out this Schedule C since I don’t have a business? 
Business name?

Business address?

date business started? 
accounting method?

[Vanessa A]

If you choose to go the Schedule C route:

Your business name would be your name

Your business address would be your home address

Your accounting method would be cash

Your business start date would be whenever you started teaching or whenever they started doing this supplemental policy.

Although the Schedule C is what the IRS would expect to find since they issued you a 1099-NEC, with this being a new form, it could go either way.  With the Schedule C, you will end up paying more tax wise due to paying Self-Employment taxes.

If you choose to file it as other income as I mentioned above, you should keep documentation that this is not for a business and it was simply supplemental pay as a way to retain you as an employee.  The documentation could be something like the letter you received stating you would be getting this income.

Although this answer is a few years old, it shows the other way to report your supplemental pay. There is still no black and white answer as to what the IRS expects in situations like yours. 

@Ashel56

[john8791]

Hello, did this stipend happen to come from the Iowa Child Care Wage$ program? My wife is in the exact same situation as a preschool teacher. The organization offers no help on how this should be handled and there seems to be no definitive answer. Have you filed yet and was it accepted? Thank you

[Ashel56]

It is from Iowa Wage$. I have not filed yet. I was hoping to hear back from Wage$ on how to handle this as well. My coworkers who also received this stipend have said they are filing schedule C as a sole proprietor. It seems to be the safest way to deal with this issue since they issued us a 1099-NEC. 

[john8791]

Thanks for the reply. I had no luck getting an answer out of them. If you find out anything from them I would appreciate a reply. If I find out anything I will do the same.