Employment buyout reported on 1099-MISC

[JeffDIY]

My wife received negotiated buyout of her position as a school superintendent in 2022. She retired and started a consulting business at that same time. Can the buyout be considered part of her earnings as self-employed or should it be the same as her W2 wages for the superintendant job?

[ThomasM125]

That would best be associated with the salary job, as compensation that would be reported on a W-2 form. If it was reported on a form 1099-NEC, however, she could enter it as business income of the consulting business, as it is somewhat related to that. However, it will be subject to self-employment tax at a higher rate than would have been paid if it had been handled as wage income.

[JeffDIY]

Thank you for that information.

Her buyout income was reported on a 1099-MISC. Does that change your answer in any regard?

Because of the increased retirement contributions allowed, we would prefer the buyout be part of her business income even though her self-employment taxes are higher.

[Hal_Al · Accepted solution]

Yes, entering it as business income is allowed, even though it was not on a 1099-NEC.  The 1099-MISC interview, in TT, allows you to do that.