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?
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
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.
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.
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.
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?
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.
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:
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.
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.
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.
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?
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.
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
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.
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.
Filing the Schedule C is the safest way to avoid an IRS inquiry. You do pay a higher tax rate on that income, but you can also claim expenses related to this income (in addition to your $250 federal allowance), so you may end up better off taxwise depending on the amount. Also, you mentioned SS and Medicare earlier. If you report this as miscellaneous income, it does not count toward your social security wage credits, but as self-employment income, it does.
@DawnCThere are not necessarily "expenses" associated with this. As the OP said, this is a stipend given by an agency to encourage early childhood to stay with their jobs. I suppose if a teacher spent money on getting further education this could be considered an expense?
Other than that, the teachers are just doing their regular jobs during regular working hours.
Yes, continuing education is a qualified deduction to Schedule C income. You can see What self-employed expenses can I deduct? for other expenses you can claim.
This was the last response I just received from Wage$:
“I asked my CPA last evening and she did not have a firm answer. She agreed that it seems a Schedule C might need to accompany the 1099-NEC, but that did not seem right given that you are not self-employed or contracted for employment. Ultimately her response was rather vague. I’m guessing she was reluctant to give out advice not knowing all the facts. Sorry I don’t have anything more for you to go on.”
I’m still leaning towards filing a Schedule C because that seems like the safest option. Let me know if you hear anything new. Thanks
Generally, you will receive a 1099-MISC for a stipend. However, you may file your stipend even though you received a Form 1099-NEC.
To report your stipend from Child Care WAGE$® IOW in TurboTax as income not subject to self-employment tax follow these steps:
@Ashel56 wrote:
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.
Because this was compensation for services performed, you are considered self-employed with respect to this income. You would report the income on schedule C and pay income tax and self-employment tax. Your business name can be your own name, your tax ID is your own SSN.
If you report this as "other income", you WILL get an IRS letter asking you to file a schedule C and SE and pay self-employment tax. You would have the option of replying to the letter with an explanation of why this is not considered "compensation for services performed."
Now, there is something called a SPIFF, or Special Performance Incentives for Field Force. Normally, this refers to incentives for selling cars, where the salesperson is an employee of the dealership, but they also get incentive payments directly from the vehicle manufacturer. The IRS has taken the position that these incentive payments are not self-employment income, are not reported on schedule C, and are not subject to self-employment tax. Here are some old forum posts on the topic.
You might take the position that this is a similar incentive payment, and because you are not providing a service to the actual payor, this is not compensation, and should be reported as other income instead of self-employment. But this is a risk you will have to take, or consult with a professional tax advisor in your area. No one on this board is able to stand behind you at audit.
@john8791 wrote:
@DawnCThere are not necessarily "expenses" associated with this. As the OP said, this is a stipend given by an agency to encourage early childhood to stay with their jobs. I suppose if a teacher spent money on getting further education this could be considered an expense?
Other than that, the teachers are just doing their regular jobs during regular working hours.
Because this was compensation for services performed, you are considered self-employed with respect to this income. You would report the income on schedule C and pay income tax and self-employment tax. Your business name can be your own name, your tax ID is your own SSN.
If you report this as "other income", you WILL get an IRS letter asking you to file a schedule C and SE and pay self-employment tax. You would have the option of replying to the letter with an explanation of why this is not considered "compensation for services performed." I can't guess if the argument would be successful.
Now, there is something called a SPIFF, or Special Performance Incentives for Field Force. Normally, this refers to incentives for selling cars or other hard goods, where the salesperson is an employee of the dealer, but they also get incentive payments directly from the manufacturer. The IRS has taken the position that these incentive payments are not self-employment income, are not reported on schedule C, and are not subject to self-employment tax, because the salesperson is not directly working for the manufacturer who pays the incentives. Here are some old forum posts on the topic.
You might take the position that this is a similar incentive payment, and because you are not providing a service to the actual payor, this is not compensation, and should be reported as other income instead of self-employment. But this is a risk you will have to take, or consult with a professional tax advisor in your area. No one on this board is able to stand behind you at audit.
@Opus 17 I appreciate your input. In the case of my wife, the stipend check was just over $900, just a few $100 over the $600 to even require that they hand out a 1099.
I have read the IRS definition of independent contractor
and it says:
You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.
It seems that the case may be reasonably argued that this is not self employment income, but is it worth the hassle with dealing with the IRS? It's a shame that a program designed to help teachers is causing so much hassle and possible extra expense from having to consult with a CPA.
@john8791 wrote:
@Opus 17 I appreciate your input. In the case of my wife, the stipend check was just over $900, just a few $100 over the $600 to even require that they hand out a 1099.
I have read the IRS definition of independent contractor
and it says:
You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.
It seems that the case may be reasonably argued that this is not self employment income, but is it worth the hassle with dealing with the IRS? It's a shame that a program designed to help teachers is causing so much hassle and possible extra expense from having to consult with a CPA.
Your wife is clearly an employee with respect to the school district that issues a W-2. The question is, what is her relationship with the payor of this grant? If the grant payor used a 1099-NEC, then they either consider this "compensation" for services performed, or they didn't actually research it and used the path of least resistance. This payment might not be compensation if she performed no services for the payor, but the fact that it was reported on a 1099-NEC means that if you don't report it as self-employment income, you will get a letter from the IRS. This letter will be automatic and sent by a computer with no human review. Your reply is the first time that your situation will be considered by a human. So if you decide to report this as "other" income not self-employment, then you will want to be prepared to write a really convincing reply letter to the IRS with copies of documents proving your case. Good luck.
@Opus 17 As far as the relationship goes, my wife had to fill out an application to get the stipend/supplement. Amounts are based on your education level. From their website, this is the only guidance give. I think at this point we will probably just do the Schedule C. Thanks again.
Do I have to pay taxes on the supplement I receive?
Yes, because the salary supplement is income. Participants will receive an IRS-1099 form at the end of the year if they received $600 or more from Iowa AEYC during the calendar year. Recipients are responsible for reporting and paying personal income taxes due.