$12,000 tax exempt without a 1099?

[Ben791]

My situation is that my wife works remotely for a foreign firm as an editor. She has no contract or benefits- they just send her word documents, she edits them and sends them back, and then they pay her through paypal. It's unclear to me how to list this on my tax return.

I went to Liberty Tax and they said I don't have to report it, because she made less than $12,000 last year, the paypal account is personal rather than a business account, and the foreign firm doesn't file any kind of tax information with the government.  We ended up not using Liberty Tax because they tried to pressure me into signing forms that said I don't have to sign them, so I'm using TurboTax instead.  

Is there any truth to his claim that I don't have to report her income?

[MaryK4 · Accepted solution]

She will want to file a Schedule C to report Self- Employment income.  Because she is considered an independent contractor rather than an employee, she will be able to deduct any business expenses incurred.  Starting in 2023, she will be receiving a 1099-K from Paypal to show the payments which can be reported on the Schedule C.  (This year if you do not receive a form you simply report as general income.)

See Self-Employed Tax Tips | Independent Contractors ... - TurboTax and TurboTax Self-Employed Online 2022-2023 - Intuit for more information, and please post if you have any additional questions.

[Ben791]

Thanks- that clears things up.  What do you mean by "report as general income"? Does that involve Schedule C, or can I only do Schedule C with a 1099, which I don't have?

[ErnieS0]

General income simply means not reporting the amount as if your wife received as a Form 1099-NEC or 1099-MISC because she did receive those forms.

1. Type sch c in Search (magnifying glass) in the top right
   Select Jump to sch c
2. Either Edit or set up your business
3. On the screen "Here's your xxxx info" tap Ad income for this work
4. On "Let's enter any additional income for your xxxx work" select Other self-employed income, includes cash and checks
5. Enter Type of income (you can use PayPal if you want) and the amount

[VolvoGirl]

That is self employment income.  

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  Here's a Schedule C  https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

You can enter Self Employment Income into Online Deluxe or Premier but if you have any expenses you will have to upgrade to the Self Employed version or use any of the Desktop CD/Download programs.

How to enter self employment income

https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...

You will need to keep good records.  You may get a 1099NEC or 1099K at the end of the year if someone pays you more than $600 but you need to report all your income no matter how small and if you don't get the 1099NEC.  For the future, you should use a program like Quicken or QuickBooks to track your income and expenses.  There is a QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Online Self Employed  return....

http://quickbooks.intuit.com/self-employed

You use your own records.  You are considered self employed and have to fill out a schedule C for business income.   You use your own name, address and ssn or business name and EIN if you have one.   You should say you use the Cash Accounting Method and all income is At Risk.   

After it asks if you received any 1099Misc or 1099NEC it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 23.  The SE tax is in addition to your regular income tax on the net profit.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf