1099-NEC Income

[DebR4]

My husband is a full-time employee for a company that gave him a W-2 for his wages, but also paid him $25k as nonemployee compensation through a 1099-NEC. He did work for other buildings the company owns that is outside of his regular job, but the company still tells him what work to do, how to do it, provides the supplies for him to use, etc. He does not work for any other company, so it does not seem like he would need to get an EIN.

When I enter the 1099-NEC income in TurboTax, under "Does one of these uncommon situations apply?", it seems I need to check the box that reads "This is not money earned as an employee or self-employed individual, it is from a sporadic activity or hobby (this is not common)", because I don't think he needs to do a Schedule C. The only thing is that this is not sporadic, he receives this non-employee payment from the company (his employer) every month. Would it be correct to check the box "This is not money earned as an employee or self-employed individual, it is from a sporadic activity or hobby (this is not common)"?

Thank you!

[ColeenD3]

No, you can't claim that. This is not sporadic activity. He is required to file Schedule C for this income. He may want to talk to his employer to find out the reasoning for this type of reporting. He can do the following, but I'm sure there would be some repercussions from his company.

Form SS-8

If it is still unclear whether a worker is an employee or an independent contractor after reviewing the three categories of evidence, then Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Wi... PDF, can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.

Be aware that it can take at least six months to get a determination. A business that continually hires the same types of workers to perform particular services may want to consider filing the Form SS-8 PDF

Misclassified Workers Can File Social Security Tax Form

Workers who believe they have been improperly classified as independent contractors by an employer can use Form 8919, Uncollected Social Security and Medicare Tax on Wages,  PDF to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation.

[Zbucklyo]

The bottom line is that the employer has incorrectly issued a 1099-NEC - but probably did it purposely in order to avoid paying the employer's share of social security and medicare taxes.  So, I see one of two options:

1.  File an extension, and go back to the employer to see if they will correct it (this is unlikely, but you can give it a shot).  At a minimum, you will be responsible for the additional income tax and your husband's portion of social security and medicare tax if you get them to change it so that a corrected W-2 is issue. 

2.  Treat it as Schedule C income.  It is clearly earned income on which income taxes, social security and medicare taxes are due.  If you treat it as other income, rather than Schedule C income, so that medicare and social security taxes are not paid, expect a letter from the IRS in a year or two explaining why medicare and social security taxes haven't been paid on this.

[DebR4]

Thank you for the guidance. It is greatly appreciated!

[KGB1955]

Since this is regular income that is not W-2 income subject to payroll taxes; is not sporadic; and is not a hobby; a schedule C is required.  Self-employment tax must be paid for this independent contractor income. Turbo tax will compute the tax