1099 NEC - Can Self Employment Taxes be added via Make Adjustments

[BarbK]

I am working on my daughters tax return for 2020.  She received a 1099 NEC from her future employer to help with  living expenses while they delayed her employment start date due to the pandemic.   

She is not self employed / nor will be for the foreseeable future.   I entered the 1099 NEC and then went to Business Taxes -  Self Employment tax,

answered Yes to "Do you want to work on your self-employment tax anyway?", then pressed "Make Adjustments", and entered the amount in the "Other SE NonFarm Profit (Loss) box.   It calculated the Self Employment tax the same as a Schedule C would without having 10 errors from missing lines on the Schedule C.   

Is this a valid and correct method to use?  

[MarilynG1]

@BarbK You should View/Print/Save her return and check the Schedule C to be sure the 1099-NEC income is reported correctly in Part 1, Line 1b. 

Check Schedule 2, Line 4 for Self Employment Tax. 

If you receive no errors in Federal Review or Efling, you should be good to go. 

Click this link for more info Form 1099-NEC. 

[SundayInSalem]

Lodging that is not provided at an employer's location is subject to Social Security and Medicare tax. Providing your daughter with living assistance would be the same.

IRS regulations require an employer to determine the taxable value by subtracting any amount the employee paid for the benefit from the fringe benefit's fair market value. Fringe benefits are also subject to Social Security, Medicare and federal unemployment taxes. See: Taxability of Employer-Provided Lodging

Fringe benefits are also subject to Social Security, Medicare and federal unemployment taxes. To determine the taxable value of employer-provided housing and lodging, subtract the rent paid by the employee from the property's fair market value. See: TAX ON EMPLOYER-PROVIDED HOUSING AND LODGING

[BarbK]

Thank you for replying.

On Form 1040 - line 8 (other income from schedule 1, line 9) reflects the correct 1099 NEC $ amount,

Also generated:

schedule 2, additional Taxes that reflects the self employment tax.

and Schedule S Self Employment Tax (Taxpayer) that shows the workup of the SE tax.

There is no Schedule C generated unless there are expenses to offset the 1099-NEC Income

I also did a mock return and told TT, that there were expenses to go with the income so the Schedule C would be generated,  but then when checking for errors,  10 errors were generated due to missing information from the Schedule C.   

The SE tax was the same in both cases.   

[BarbK]

I am not questioning that additional taxes are owed.

[LinaJ2020]

This amount should be reported on a W-2 as fringe benefit.  See response from SundayInSalem.  

In TurboTax online, here are the steps: 

• Sign into your account, select Pick up where you left off
• From the upper right menu, select Search and type in 1099nec and Enter
• Select the Jump to 1099nec
• Follow prompts
• On screen " Does one of these uncommon situations apply?"  select "Taxpayer's employer reported this extra money on a 1099-NEC but it should have been reported on a W-2".
• Follow prompts to file a SS-8 and Form 8919.

You will need to file a Form 8919 to report uncollectible Social Security and Medicare taxes on the amount.  

@BarbK

[BarbK]

Thanks for your reply,  but she didn't start working there in 2020, so no W2.

The way it looks now,  is the $ showing up on line 8 and described as "Non-employee compensation from 1099-NEC", a schedule 1, and a SE schedule.

The $ is showing up on line 8 vs Business Income on line 3.     

[DawnC]

It is fine to report it that way as long as you did the mock Schedule C and the self-employment taxes were the same.    Generally, you would just enter the income on Schedule C (plus the 10 fields you received the errors for) and TurboTax would compute the SE tax and place them on the respective schedules. 

However, you have entered the income as Other Income (Line 😎 and manually added the SE tax.   Same result.   As long as you don't have errors, you can file.   Just keep detailed records in case of an unlikely inquiry.   

The alternative (preferred) method is to report the income on Schedule C as you did in the mock return.   In that case, the income would be on Line 3 of Schedule 1 instead of Line 8.   And you would not have needed to do the SE adjustment.    Income form Schedule automatically has the SE added to it.    Line 3 (business) income automatically generates the SE tax, but Line 8 income (other) does not.   

You can disregard the replies regarding the W-2 entry and reporting employee fringe benefits as she is not yet an ''employee'' listed on any company's payroll.   Hope this helps and good luck to her in her new endeavor.  @BarbK