1099-NEC

Forum|Forum|5 years ago
April 27, 2021
1 reply
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My husband sells cars and the car manufacturer offers incentives that load to a debit card on certain models he sells. In the past he received 1099-MISC but this year he received a 1099-NEC which is requiring a Schedule C. It was for $1225.00 over the course of 2020. We purchased TurboTax Home and Business. I'm getting several errors on the Schedule C and am not sure how to answer.

1) is it a qualified business under section 199A

I'm also struggling with what entries to make in Section A-F, since he is not self-employed but rather works for an automobile dealer and receives salary from them.

Any help is appreciated. Thanks!

rjs

Level 15

The manufacturer incentive payment (which is commonly called a spiff) is not self-employment income or business income, and you do not report it on Schedule C. Do not enter the 1099-NEC in TurboTax. Instead, follow the steps below to enter the income.

In TurboTax Home & Business click the Personal Tab. (In other versions click the Federal Taxes tab.)
In TurboTax Home & Business click Personal Income. (In other versions click Wages & Income.)
Click "I'll choose what I work on."
On the screen "Your 2020 Income Summary," scroll all the way down to the last section, "Less Common Income." Click the Start button for the last topic, "Miscellaneous Income, 1099-A, 1099-C."
On the next screen, "Let's Work on Any Miscellaneous Income," scroll down and click the Start button for the last topic, "Other reportable income."
The next screen asks, "Any Other Taxable Income?" Click Yes.
On the next screen, "Other Taxable Income," enter a description and the amount. For the description enter "Manufacturer incentive payment from 1099-NEC". Click Continue.
On the next screen click Done.

The income will be reported on Schedule 1 line 8 with the description that you entered. This is the correct way to report it.

The IRS is supposed to recognize the description "Manufacturer incentive payment" as meaning that the 1099-NEC is not self-employment income. I don't know how reliable they are about recognizing it. You might get a letter from the IRS saying that you should have filed Schedule C and Schedule SE, and that you owe self-employment tax on the payment. If that happens, you will have to reply to the letter explaining that the payment on the 1099-NEC was a manufacturer incentive payment, and not self-employment income.

taedwardsAuthor

Level 2

Thank you. I talked to American Honda and they sent me all info referring to 1099-MISC not the 1099-NEC. Is there an actual document that indicates what you outlined below is how the IRS has said to handle 1099-NEC for SPIFFs? Honda said IRS publication 3204 but again that refers to the 1099-MISC and is dated 2008. I appreciate your help.

rjs

Level 15

As you have seen, all the information from the IRS is old and has not been updated. Since Form 1099-NEC is basically replacing 1099-MISC box 7, I'm assuming that everything the IRS said in the past about 1099-MISC box 7 now applies to Form 1099-NEC. Honda seems to have made the same assumption. There's no reason that the procedures would have changed. This is a very obscure provision, and obviously doesn't get a lot of attention from the IRS. They are overloaded with last-minute and retroactive major changes in the tax laws, and probably don't have the manpower to deal with the effect of a form change on a little-used procedure.

I suggest that you go ahead and file the way that I outlined. The worst that can happen is that you get a computer-generated letter from the IRS. That could happen anyway, even with a 1099-MISC in previous years, as I said in my earlier post. Your reply to the letter will get reviewed by a person, not a computer, and the person will straighten it out.