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

[DawnC]

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.   

[john8791]

@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.

[AliciaP1]

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.

@john8791

[Ashel56]

@john8791 

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

[TomK100]

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:

1. Log in to your TurboTax account if it is not open.
2. Select the Wages & Income tab.
3. Scroll down to Less common income click Show more.
4. On the page Let's Work on Any Miscellaneous Income click on Other reportable income.
5. On the page Any Other Taxable Income?  select yes.
6. On the page, Other Taxable Income enter Child Care WAGE$® IOWA Stipend Form 1099-NEC for the description and the amount.
7. Select continue and answer No on the next page.

[Opus 17]

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@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. 

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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.

https://ttlc.intuit.com/community/taxes/discussion/i-have-miscellanous-income-which-is-bonus-pay-fro...

https://ttlc.intuit.com/community/taxes/discussion/re-spiff-special-performance-incentives-for-field...

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]

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@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.

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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.

https://ttlc.intuit.com/community/taxes/discussion/i-have-miscellanous-income-which-is-bonus-pay-fro...

https://ttlc.intuit.com/community/taxes/discussion/re-spiff-special-performance-incentives-for-field...

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]

@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.

[Opus 17]

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@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.

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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. 

[john8791]

@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.

[4papaloco2]

So my Daughter a teacher died in 11/20/2021 and the school district sent me her last pay check and than sent me a 1099-NEC, so I need to contact the school district and get a 1099-MISC?

[Opus 17]

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@4papaloco2 wrote:

So my Daughter a teacher died in 11/20/2021 and the school district sent me her last pay check and than sent me a 1099-NEC, so I need to contact the school district and get a 1099-MISC?

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What was the 1099-NEC for?

[Vanessa A]

No, per the instructions for the 1099-NEC, you can report this as Other Income instead of self-employment income by taking the following steps:

• Federal
• Income and Expenses
• Scroll down to Less Common Income and click Show More
• Start next to Miscellaneous Income
• Start next to Other Reportable Income

This will put it on line 8z of your schedule 1 as other income.