1099-nec, retirement, and health insurance premiums

[SONDREW1]

My company agreed to pay my health insurance premiums after I retired.  However, I recently received a 1099-NEC from my company for the amount paid for the premiums in 2020  I suppose I could deduct the premiums as a medical deduction; however, it was my understanding that health insurance premiums paid by my past employer after I retired are not taxable income.  If it is not taxable income, do I simply ignore the amount on the 1099-NEC?  Moreover, if it is taxable income, I question if a 1099-NEC should have been issued, instead of a 10999-MISC.   

[DJS · Accepted solution]

It does appear that they should have issued a 1099-MISC rather than 1099-NEC.

File Form 1099-MISC for each person you have given the following types of payments to during the tax year:

• At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
• At least $600 in the following:
  • Rents
  • Prizes and awards
  • Other income payments
  • Cash from a notional principal contract to an individual, a partnership, or an estate
  • Any fishing boat proceeds
  • Medical and health care payments
  • Crop insurance proceeds
  • Payments to an attorney
  • Section 409A deferrals
  • Nonqualified deferred compensation

Use a 1099-NEC form to report nonemployee compensation. Nonemployee compensation includes the following payment types to independent contractors:

• Fees
• Commissions
• Prizes
• Awards
• Other forms of compensation for services

Employer-paid premiums for health insurance are exempt from federal income and payroll taxes. Additionally, the portion of premiums employees pay is typically excluded from taxable income. 

I'm not sure if this also applies to retired workers. I do note that box 6 on the 1099-MISC is for amounts of medical and health care payments, so having the 1099-misc (not 1099-nec) makes a difference in how that income is reported and treated on your tax return.

[domytaxes4me64]

In the 1099-R, Box #5  asks for Employee contributions or insurance  premiums and has $181.44 in the box.  Then on further down there is a box under Recipient's Name that just says "Insurance Premiums" and doesn't have a Box #.  There is an amount of $996.08 in that box.  Where does it go?

[MarilynG1]

@domytaxes4me64 If you have a CSF/CSA 1099-R, click this link for info on Insurance Premiums in Box 5.

[domytaxes4me64]

But my question isn't about Box 5.  As I said in my question, there is a box down below the recipient's name that says "Insurance Premiums" and doesn't have a Box #.  It has $996.08 in it.  I was wondering how to transfer that info to the 1099-R form online.

Thanks.

[Randall123]

The solved answer is crazy - the payments for medical and health care in Box 6 are for payments made directly to physicians and other health care providers that must be reported to the recipient health care provider - no relation to what should be reported for a former employee for payments made for health insurance premiums.

[MarilynG1]

If you received a 1099-Misc with an amount in Box 6 for Medical or Health Care Payments, you can enter the 1099-Misc as Self-Employment Income and enter an equal amount as a Self-Employed Expense.

This way you are reporting the 1099-Misc (the IRS has a copy) and the net tax effect is $0.

Click this link for more info on 1099-Misc for Health Care Payments.

Type 'schedule c' in the Search area and then 'Jump to schedule c' to get to this section.

If you actually paid more in Medical Expenses than the amount on your 1099-Misc, you can enter the excess as a Medical Expense, if you file itemized deductions on Schedule A. 

[rickles117]

I have a similar question. I am a retired partner from a company that is now a corporation (Accenture). While I pay the majority of my own supplemental health insurance premium, a small portion is evidently covered by the company. I used to receive a 1099-MISC for this amount (~$1,800) and Turbo tax processed this fine. Now, instead of the 1099-MISC, I now get a 1099-NEC. When I enter this into Turbo tax, it proceeds to treat me as a "business", asks me all kinds of irrelevant questions, computes self employment tax, generates a Schedule C, etc. etc. etc. Is this right. If not, how do I get around this???

[DJS]

The 1099-NEC is the form used report independent contractor payments for calendar year 2020 and beyond. NEC stands for Nonemployee Compensation and Form 1099-NEC is taking the place of what used to be recorded in Box 7 of Form 1099-MISC.

[rickles117]

Thanks, I understand that. My question dealt with the dramatic changes in TT and IRS forms generated when the Insurance supplement was reported on the NEC rather than the MISC form. With the MISC form for the same supplement, no Scd C, etc were generated. Now, reporting the same data on a new form creates all sorts of downstream differences. Also, all of the questions/forms/ etc. want to treat me as an independent contractor, when I am just a retiree.

[DJS]

The 1099-NEC income is reported on schedule C, but the question may be whether or not you should have received a 1099-NEC or 1099-MISC. 

Specific Instructions for Form 1099-NEC

File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:

• At least $600 in:

• Services performed by someone who is not your employee (including parts and materials) (box 1);

1. Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or

2. Payments to an attorney (box 1). (See Payments to attorneys, later.)

[jametheus]

I too have encountered this "hiccup" in TT 2021.

I have tried entering the payment from my former employer as a 1099-NEC entry and as a 1099-MISC entry. Neither works, and I end up having TT steer me towards treatment as a self-employed individual with all the accompanying complexities.

Searching through IRS documents also fails to provide any answers to this issue.

At this point, I may just have to ignore the whole issue and wait for IRS to audit me. Only then may I have the issue addressed and resolved!

In the mean time, one thing appears to be clear, and that is that employer payments to an employee for medical insurance premiums for insurance privately obtained by that employee are NOT considered as taxable income! So, does that also apply to retired employees?

Someone appears to have dropped the ball pin this issue at TT and/or IRS!

[Vanessa A]

Yes, that applies to retired employees as well.  The money you receive as a direct reimbursement for insurance premiums are not taxable.  However, depending on how your company handles it, you may still need to report the income and it could potentially be taxable. When a company directly reimburses you based on a payment made to the insurance company, this is not taxable.

If they are just sending you say $400 a month to cover your premiums without verification of those premiums being paid or specification that this must be used to pay your insurance premiums then this would be taxable income that if you are able to itemize you would be able to deduct the premiums you paid.

 If they are sending you a 1099-Misc, it is likely you do need to include this in your income as they may be saying we are just sending you this money, but did not meet the standards to say it is not taxable.  To do this you can enter it by selecting the following:

• Federal
• Income and Expenses
• Scroll down to Less Common Income and click Show More
• Start next to Miscellaneous Income
• Start next to Other Reportable Income

This will put it on line 8z of your schedule 1 as other income. 

[Cinder4PV]

My employer agrees to continue health insurance at no cost upon retirement, for the duration of the retiring employee's unused sick leave.  Generally, the employees have to pay 10% of the cost of insurance but retiring employees electing this extension of insurance benefits are not required to pay the 10%.  As a result, I received a 1099-NEC for the imputed income, my 10% of the cost of insurance for 9 months of 2023.  TT treats this as business income and wants me to start a Schedule C.  The former employer insists the 1099-NEC is the proper reporting form.  I clearly am not a business.  How do I resolve this in TT?

[RobertB4444]

On the third screen of the input for the 1099-NEC there is a box that says "This is not money earned as an employee or self-employed individual, it is from a sporadic activity or hobby (this is not common)."  Tick that box.

That will tell the system that your income is taxable (because it is) but that you didn't do it as part of a job so it is not subject to self-employment tax.

@Cinder4PV