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Level 2
posted Apr 13, 2025 3:23:45 PM

Materially Participate?

I don't have a business. I got a 1099-NEC because I received reimbursements for travel meals and tips. Did I "materially participate" in the operation of this business that doesn't exist?

 

It feels like a wrong answer leads to auditville.

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1 Replies
Expert Alumni
Apr 14, 2025 5:37:47 AM

Who did you get this from? What relation did you have with the payor? An employer?  An honorarium?  Is this something you do on a regular basis?

Depending on what it is for, you may need to say that it was hobby or sporadic activity.  However, when you do this, you cannot deduct the travel expenses you incurred. 

 

If it is for services, and you did something to earn this and it was NOT your employer, then this could be considered self-employment income and you would say you materially participated because you did something to get the money.  It wasn't just an investment.
 

 

If it is from your employer, then this needs to be included on your W-2 and should not be on a 1099-NEC. Employers must include ALL payments on your W-2. You should contact your employer for a correction, but if they do not, then you will need to enter your income by selecting the following:

 

  1. Income
  2. Show More next to Less Common Income
  3. Start next to Misc Income
  4. Start next Other income not already reported on a form W-2 or Form 1099
  5. Yes to did you receive any other wages
  6. Continue through to did you earn any other wages and answer yes
  7. Select employee compensation that was not reported on a W-2
  8. Hit continue
  9. Report your wages and select I received a 1099 for this income use reason code H

 

Myths About Misclassification