1099-NEC

[taedwards]

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]

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.

[taedwards]

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]

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.