Tax Year Prior to 2020: Should reimbursed expenses be included in box 7 of a 1099-MISC?

[AmyT]

Some businesses include reimbursed expenses when reporting their contractors' pay.

Generally, if these expenses were reimbursed using an accountable plan (substantiation such as receipts are provided), there is no need to include these amounts in box 7.  Depending on the accounting of the business, some will still include reimbursed expenses as Nonemployee Compensation (box 7).

If you have received a 1099-MISC that has reimbursed expenses included in the amount listed in box 7, you should take a deduction for these expenses when you complete your Schedule C.

[yuichiseki]

What happens when the exposes that was reimbursed and included in Box 7 on 1099 Misc, was for not only my own travel, but for a film crew for a project.  For example, Box 7 stated $70K, which included $20K of reimbursed expenses.  In reality, I made $50K in income.  The $20K was for meals and travel expenses for 4 people.  I paid from my own pocket and got reimbursed.  
1) Can my employer add the $20K to my $50K income in Box 7? Taxes for me on $50K vs $70K minus business expenses will not be the same, especially considering some expenses are 50% deductible).  
2) Since I am paying out of my own pocket, isn't the $20K like a short term loan? (Especially, I was paying for other people.
3) Can I enter the $50K on my tax form, even though the 1099 Misc Box 7 states $70K?

Thanks

[Idgiek]

I have the same question. Did this ever get answered?

[saorisp]

I have the same question and nobody seems to have an answer for getting a dollar for a dollar balance. When we invoice clients for the direct expense, we have to give up the receipts so there's no supporting document for the IRS either.

[polecat]

"you should take a deduction for these expenses when you complete your Schedule C."

How?

TurboTax has no way for us to do that. 

[VolvoGirl]

You enter the expenses in the appropriate place on schedule C like Supplies or Travel, etc.  Just like any regular expense.

Where to enter expenses in the Online Self Employed version

https://ttlc.intuit.com/questions/3636848-where-do-i-enter-my-self-employment-business-expenses-like...

[Kay26]

I have this problem too. And while I have read in a few places and forums that you can deduct those expenses - I’m confused as to what category. Can you list it in Schedule C under miscellaneous expenses?... with a possible description saying “out-of-pocket expenses reimbursed but added as 1099 income”?

because otherwise if you separate it out into supplies, meals, etc...you might only get a 50% deduction on some of those things. Did anyone that previously posted on this find any answers?

[JohnW222]

Categorizing these as miscellaneous expenses works as well as anything else.

[Gary2642]

One question that has not been addressed is that you will pay social security tax on this income if reported on your 1099.  I understand how you can show the reimbursed item as an expense and thus your bottom-line profit for income tax purposes will not be impacted but how do you modify this so you don't pay social security and other self-employment taxes as turbo tax automatically takes box 7 and calculates the self-employment tax (you do get a 50% write-off as a deduction but still you have now overpaid on self-employment taxes.

I would appreciate feedback and suggestions on this.  Thanks!

[VolvoGirl]

No.  You only pay the SE self employment tax on the Net Profit on Schedule C.  Not on the 1099Misc or gross income.

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 15.  The SE tax is in addition to your regular income tax on the net profit.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 14 which flows to 1040 line 8a.  Turbo Tax automatically calculates the SE Tax and Adjustment.

For 2019 Schedule C Net Profit or Loss now goes to 1040 Schedule 1 line 3.  Then the total on schedule 1 line 9 goes to 1040 line 7a.

[WKins2]

If you reimbursed expenses are included in your box 7 of your 1099 that is okay as long as you take the expenses to offset that on your return. You would take the reimbursable expenses as actual expense on your return. For example, if your lump sum was $10,000, but $2,000 of that was reimbursable expenses you would report $!0,000 as income, and split the $2,000 out as actual expenses on the return i.e. $1,000 office supplies, $250 dues and subscriptions. 

[VolvoGirl]

Here is Schedule SE to see how it works

https://www.irs.gov/pub/irs-pdf/f1040sse.pdf 

[Faragone]

I up-fronted some expenses for the company I work for, and they gave me a 1099-MISC showing that amount as nonemployee compensation. Now, do I have to enter that amount anywhere or not? It's not income I made, it's just my money being returned. I am not a self employee of private contractor so I don't know exactly how to deal with this.

[twoodlee]

I will go ahead and inject my opinion on this since I've had this come up a lot before.  This may have already been answered satisfactory but I thought I'd chip in.  If the reimbursements are included on the 1099 and the expenses are accountable to the payor from the payee/contractor, then these are 100% deductible as "reimbursed expenses".  If for example the expense reimbursed includes meals those meals are part of the reimbursed expenses and 100% deductible and not reduced by the otherwise 50% reduction.   The payor would be responsible for the 50% reduction for meals paid. 

Hope this helps.