1099-NEC

[dmacjr15]

Does anyone know how TurboTax works when you receive a 1099-NEC from an employer ? My daughter works at a local store and they issued her a 1099-NEC for 2024. I am trying to file her return, but it seems TurboTax thinks this is her own business. It is not, but she is an employee there. Any guidance on how to file her federal and state taxes this year would be helpful.

[VolvoGirl]

Sorry a 1099NEC is for self employment income.
To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax. You can enter Self Employment Income into Online Deluxe but if you have any expenses you will have to upgrade to Premium version. Or any of the Desktop programs. But you will get the most help in the Home & Business version.  Yes you are the owner of your own self employment business. You are in business for yourself.  Use your own info. The people or company that pays you is your customer or client. You need to fill out schedule C for self employment business income. You are considered to have your own business for it. YOU are the business.

She needs to pay the Self Employment tax for Social Security and Medicare tax on it that wasn't taken out like on a W2.  

How to enter income from Self Employment
https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...

[dmacjr15]

@VolvoGirl 

thanks for the link but this is not her business. she just works for the store and the store owner issued her a 1099-NEC. TurboTax is asking all questions about the business as it appears TurboTax thinks she is the owner. Do I just skip those sections ? Any guidance would be helpful.

[VolvoGirl]

You have to fill it out as self employment income and answer the business questions for her being the business.  She is filing schedule C.  Self Employment means she does have her own "business" for it.  

You should ask the employer why they gave her a 1099NEC instead of a W2.  How long did she work there?   You or she didn't notice they were not taking any federal or state tax withholding out or FICA SS & Medicare taxes?  You can file form SS-8 if they should have paid her as a W2 employee but I don't know how that works.  

https://www.irs.gov/pub/irs-pdf/fss8.pdf 

[DianeW777]

It depends. The store owner may want to pay her as though she is an independent contractor however, there are options for your daughter. She has the option to file this as though she was an employee and it sounds quite clear this is how she should have been treated.

It is subject to income tax and employment tax withholding, because it is compensation for work performed for an employer.  There is a way to handle this in TurboTax, using either form SS-8 or a substitute W-2 form. If the wage was paid in 2024 and the employee started work in 2024 and a 1099-NEC use Form 8919 with code H.  This will allow you to pay the employee share of social security and medicare tax.

Form 8919:

Complete the steps (entered below for your convenience). The IRS will go back to your employer for their share.  

1. Scroll to Less Common Income
2. Start next to Miscellaneous Income 
3. Start next Other income not already reported on a form W-2 or Form 1099
4. Yes to did you receive any other wages
5. Continue through to Did you earn any other wages? and answer Yes
6. Select Employee compensation that was not reported on a W-2
7. Continue > Report your wages, employer information and select reason code H

This will report your wages and you will also see the information for the SS-8 along the way. You will pay only the employee share of social security and medicare taxes. Form 8919 will be included with your return, see the link below.

• What if Form 8919: Uncollected Social Security and Medicare Tax on Wages?

The Form SS-8 helps to differentiate between an employee and an independent contractor (self-employed).

@dmacjr15 

[VolvoGirl]

And see the answers on this post.....

https://ttlc.intuit.com/community/taxes/discussion/employee-income-reported-on-form-1099-nec/01/3502... 

[dmacjr15]

@DianeW777 

thank you for the information very helpful, but I am concerned how this may impact the store owner. If I select the option to not file as 1099-NEC but go the route SS-8/substitute W2 it seems the IRS will go back to the store owner to collect taxes and give them a penalty ? Does this sound right ? Or should I talk with the owner and confirm why she issued a 1099-NEC instead of W2 ? My daughter does not work a lot at this store but just enough for me to have to file a return. Trying to do the right thing and understand taxes have to be paid even if it is small.

[DianeW777 · Accepted solution]

Yes, you are correct. The IRS will go back to the store owner and they will have a penalty for late payment. It's not confusing as far as what the store owner is required to do.  

You can file the 1099-NEC as though your daughter is self employed which will let them off the hook.  If they tell her when to be there, what to do, when to leave, how to perform her duties, etc, they are an employer.

Many taxpayers do choose to follow the self employment route in this situation. She will have to pay self employment tax on the net amount of the income. If she does happen to have any expenses, she would be allowed to use them. 

Example of the SE Tax: The self employment net profit is first allowed to be reduced for 7.65% (1.0 - .0765 = .9235), this is then multiplied by the net profit to arrive at the amount subject to self employment tax ($500 x .9235= $462). The balance is taxed as follows:

• $462 x 12.4% for social security tax = $57.28
• $462 x 2.9% for medicare tax = $13.40

@dmacjr15 

[dmacjr15]

@DianeW777 

Thank you very much for all your guidance. This makes sense and I can see the details in the form section of the returns. Appreciate the quick turn around and now I can complete the tax filing for 2024.