1099-NEC received for cashless ESOP exercise - Do I report it on Schedule-C and pay Self-Employment Taxes?

[portKey]

I had some NSO stock options which were cancelled as part of a cashless exercise (and immediate sale) and the company issued 1099-NEC for the transaction. I understand that the 1099-NEC amount is taxed as ordinary income.

However, does this need to be reported on Schedule-C and I also have to pay self-employment taxes on it or do I simply report it as other income on Schedule-1 and pay the ordinary income taxes? If latter, what subsection is it reported on (eg line 8j or 8z of Schedule-1, or somewhere else?). 

How do I pick the correct approach in TurboTax step-by-step questionnaire?

Thanks in advance!

[ee-ea]

This applies to Form 1099-NEC, 1099-K, 1099-Misc et al and to other taxable income without a report.

Enter it in the personal section, Other Common Income Form 1099-MISC.  To ensure it does not go to Schedule C (self-employment), you will answer the follow-up questions accordingly. 

On the Describe the reason for this 1099-MISC screen, enter a description of the other income. (award/stipend)

Select None of these apply on the Does one of these uncommon situations apply? screen.

Select No, it didn’t involve work like my day job on the Did the involve work that's like your main job? screen.

Select I got it ONLY in 2023 on the How often did you get income for? screen.

Select No, it didn’t involve intent to earn money on the Did the work involve an intent to earn money? screen.

Answering differently to any of these questions will imply self-employment and generate Schedule C.  

Please give feedback. If this helps click “Thumb” or “Best Answer” if it’s a solution.

[portKey]

Thanks for the prompt response. Once I select "None of these apply to me" on the Uncommon Situations screen, the very next screen I get is that this 1099-NEC is self-employment, asking me to enter business information for Schedule-C.

On the uncommon situations select screen, I do see an option that says "This is not money earned as an employee or a self-employed individual, it is from a sporadic activity or hobby (this is not common)" 

- Should I select this option instead of "none of these apply to me"?

- And fundamentally, is such a cashless ESOP exercise SE income or not? I've seen some conflicting posts on the community pages elsewhere. 

Thanks!

[ThomasM125]

Income from employee stock options is not subject to social security tax so it would not be correct to report it as self-employment income. You should indicate that the income is not earned as an employee or self-employed individual so it won't be treated as self-employment income.