Amazon Vine 1099-NEC and IRA contribution

[Rconrad2k]

I started participating in the Amazon Vine product evaluation program this year.  Next year I will receive a 1099-NEC for the estimated tax value of the products reviewed. I expect it to be around $2,000. I am retired with no other earn income, just pension and social security, and I am not old enough to start taking Required Minimum Distributions from my IRA.  

When I do my taxes next year, could I contribute an amount equivalent to the 1099-NEC to my existing Traditional IRA to offset the increase in income taxes caused by the 1099-NEC?

[Bsch4477]

Yes, you can do that but recognize that you still have to pay 15.3% self employment tax on that income. 

[Rconrad2k]

Yes, that's a real downside to Amazon's program, but having the traditional IRA contribution tax deduction will help lessen the pain!

[dmertz · Accepted solution]

To be clear, the amount available to contribute to an IRA or other retirement plan is net profit minus the deductible portion of self-employment tax, so you won't be able to contribute the entire Form 1099-NEC amount to a retirement account.

[Opus 17]

You need to report your gross income as well as any legitimate expenses.  Then, your net profit is subject to 15.3% self-employment tax.

You also have to subtract the deductible portion of your self-employment income (half the self-employment tax or 7.65%) from your self-employment income, to determine your eligible contribution.  So your compensation for purposes of contributing to an IRA will max out at 92.35% of your net profit from self-employment.

https://www.irs.gov/retirement-plans/self-employed-individuals-calculating-your-own-retirement-plan-...

[Rconrad2k]

Complicated.  If I have no legitimate expenses related to the Vine program, so the entire estimated tax value would be considered profit, so, if I understand correctly I could make a traditional IRA contribution of 92.35% (that's a weird number!).  My take away is that the Vine program is more hassle than it's worth!

[Opus 17]

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@Rconrad2k wrote:

Complicated.  If I have no legitimate expenses related to the Vine program, so the entire estimated tax value would be considered profit, so, if I understand correctly I could make a traditional IRA contribution of 92.35% (that's a weird number!).  My take away is that the Vine program is more hassle than it's worth!

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About 92% of your net self-employment is considered "compensation" for IRA purposes.  And you will need to pay 15% self-employment tax, although if you contribute your entire work earnings into the IRA, you can pay the SE tax from an RMD, or savings or other funds.

Whether this particular way of earning extra money is "worth it" is, of course, a very personal decision and depends on what you do, how much you enjoy it, how much time it takes, and so on.  

[dmertz]

Opus 17's calculation of self-employment tax is off slightly.   The deductible portion of SE tax is actually 7.65% of 92.35% of net profit.  (The calculation compensates for the employer portion of the tax.)  With rounding to the nearest dollar, the result is that $2,000 of net profit allows an IRA contribution of $1,858 which is 92.935% of net profit.

[Pixie2400]

I just found this and wondered why no one is talking about it. From IRS. Gov:

IR-2023-221, Nov. 21, 2023

WASHINGTON — Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the Internal Revenue Service today released Notice 2023-74PDF announcing a delay of the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023.

As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year. This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn't expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.

[dmertz]

A delay in the requirement for third-party settlement organizations to issue Forms 1099-K has no effect on the individual's responsibility to report income, it only affects the manner in which the individual reports certain income.

[PiKaPiKa]

I have been participating in the Vine program for almost 3 years now and have been filing on Turbotax.

First of all, do not file the 1099-NEC from Amazon Vine as the normal Self-employment income.

If you file with Turbotax, go down to "Less Common Income Home sale, canceled debt (1099-C, 1099-A), 1099-SA, gambling, etc." then, "Miscellaneous Income, 1099-A, 1099-C" then,  Hobby.
Since Amazon Vine is considered as a Hobby.

The Amazon Vine program is not income from Self-employment.

Put in the amount in Box 1(Nonemployee compensation) on the first line income.

And for total expense, 0.00.

Write Amazon Vine Review Program and describe what it is. (Receive free items in exchange for a review etc.)

The tax you have to pay would be $0.00 if your Box 1 is less than $13,000.

I have been filing like that. No issues or questions from the IRS.

[dmertz · Accepted solution]

Income form the Amazon Vine program can be income from self-employment or not depending on the individual's particular circumstances, but would be income from self-employment if it is done with the intent to earn compensation in the form of cash or products.

"The tax you have to pay would be $0.00 if your Box 1 is less than $13,000."

The income is includible in your AGI.  Whether or not this income increases your tax liability depends on the rest of your tax return.

[mforrer]

I just followed your advice. My wife did the Vine thing in 2023 and reviewed $8,000 worth of items. After filling out the Turbo Tax 1099 NEC stuff .. the amount we now owe went up $2,000. It was under the $13,000 you said would exempt us from being taxed at all. Is this correct? Did I do something wrong? 

[dmertz]

For many people there is no reason to expect the Vines income to be nontaxable.  The statement about $13,000 not being taxable assumed no other income, resulting in $0 of taxable income after subtracting the standard deduction, and treating the income as not being income from self-employment so as not to be subject to self-employment tax.

[Opus 17]

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@mforrer wrote:

I just followed your advice. My wife did the Vine thing in 2023 and reviewed $8,000 worth of items. After filling out the Turbo Tax 1099 NEC stuff .. the amount we now owe went up $2,000. It was under the $13,000 you said would exempt us from being taxed at all. Is this correct? Did I do something wrong? 

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You have misunderstood the discussion.

If your only income is "hobby" income, and it is less than $13,800, you generally don't need to file a return and won't owe tax if you file.

However, if you have any other income, then all your income is taxable, and if you file a tax return for any reason, you must list all your income, no matter how small the individual items are.  

Furthermore, if you report Amazon vines as self-employment instead of hobby income, you will pay 15% self-employment tax on your net profit, on top of any income tax you owe.

Whether your activity is a hobby or self-employment depends on several factors including regularity, intention, and profit motive.