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1099 NEC includes both billable hours for consulting and proceeds from stock option transactions

My wife is a self-employed consultant for a major company, and for whom she was a previous paid employee (two years ago) prior to going into business for herself. As a result of her previous employment, she has enjoyed continuing to receive vested options which are reported to her on the same 1099nec which has her billed hours compensation. Her billed hours were only around 15,000 but her 1099nec shows around 190,000.  The company and the stock broker provide supplemental information which allows me to deal with the tax issues around the RSUs income.  My question is - where do I put the 1099nec info.  If I put it in the general 1099 section, it puts the whole 190000 into her business schedule C, yet she only generated 15,000 for her business. I hope this is clear.  thanks. 

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3 Replies
DianeW777
Expert Alumni

1099 NEC includes both billable hours for consulting and proceeds from stock option transactions

It depends.  If the RSUs have not vested yet, then you report only the business income. If you believe it is fully vested, then tax reporting does exist.  Read the article below to see where your wife stands with the RSUs.  Additionally, when they are reported, the value assigned becomes the cost basis in the stock when they are sold.

 

When you receive an RSU, you don't have any immediate tax liability. You only have to pay taxes when your RSU vests and you receive an actual payout of stock shares. At that point, you have to report income based on the fair market value of the stock.

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1099 NEC includes both billable hours for consulting and proceeds from stock option transactions

Thanks Diane

I have no issues with the income generated by vesting the RSU.  However, typically RSU's vest while being an employee of the company and that income is reported via W2.  However, my wife is not an employee of the company. She managed to continue receiving RSUs to vest after she left as a specific item in her self-employed contract with the company.  Reporting the income from the vested RSU on a 1099 then moves those dollars into self employment category with subsequent self-employment tax.  So are you saying the RSU income has to be considered as part of her self-employment income (15000 vs 175000)?

MinhT1
Expert Alumni

1099 NEC includes both billable hours for consulting and proceeds from stock option transactions

Yes.

 

Just as RSU income reported on a W-2 for an employee is subject to payroll (FICA) taxes, RSU income for a contractor reported on form 1099-NEC is subject to self-employment tax.

 

Please read this TurboTax article for more information.

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