Employee Income Reported on Form 1099 NEC

[Bob-K3]

In 2024, my young son was employed for a short time at a private sports club that just opened  He mainly worked at the front desk, and had no management reponsibility, and, as I understand the definition of employee, he fit that perfectly. However, instead of providing a W-2 form, the employer provided a 1099 NEC form.  As I started to do his taxes, I quickly learned that income under NEC is taxed very differently than W-2 income.  His total wages in 2024 were about $5,000 between this job and another similar job for which he received a W-2. Can anyone suggest the best way to report the NEC income?  Thank you. 

[SharonD007]

You will have to report your son's income from Form 1099-NEC on Schedule C.  The IRS considers this income as self-employment income. You don't have to name the business, you can use your son's name. The good thing is that you'll be able to deduct reasonable and customary business expenses from that income.

Refer to the TurboTax article What is a 1099-NEC? for navigation instructions.

He will be responsible for self-employment taxes on his net income from Form 1099-NEC.  Refer to the TurboTax article? What is the self-employment tax? for more information.

For additional information, refer to the TurboTax Help articles How to File Taxes with IRS Form 1099-NEC, Reporting Self-Employment Business Income and Deductions, and What self-employed expenses can I deduct?

[Opus 17 · Accepted solution]

The short answer is to report the 1099 income as self-employment, and he will pay income tax plus both halves of social security tax (about 15%) instead of the 7.65% that would have been withheld from wages.  His income is under the limit to pay income tax, but he will still pay the self-employment tax.  

If you believe your son should have been classified as an employee, you (he) can file his return using form 8919 claiming code G.   

https://www.irs.gov/pub/irs-pdf/f8919.pdf

In Turbotax, he would enter the 1099 but check the box for "I was an employee and this should have been on a W-2".  He will pay 7.65% social security and medicare (his share that should have been withheld) but not the full 15% self-employment tax.  Then, he must also complete and file (separately, not attached to the tax return) a form SS-8 asking the IRS to investigate the employer and determine if he was an employee or independent contractor under the facts and circumstances.  

https://www.irs.gov/forms-pubs/about-form-ss-8

If the IRS rules he was an employee, the employer pays penalties, including refunding the social security taxes (as penalty for not withholding correctly, the employer has to pay both halves.)   This kind of investigation is likely to piss off the sports club and cost them considerable time, money and effort to respond, so I don't think he would get an offer to work there again.  That may be a factor in your decision, is this a relationship you want to terminate for a couple hundred dollars. (Of course, there may be others in the same position who would benefit from the same investigation.)

[Bob-K3]

Thanks for your detailed reply.