It depends on what box the income was reported in on the Form 1099-MISC.
If its Box 3 income -
First, you will want to report the 1099-MISC as is and the income should go to line 21 of Form 1040 - it will show as Box 3 1099 MISC income. Then, you will add another line to line 21 with a negative amount for the same amount as your 1099-MISC - label it something like "Payment actually received by"... and if you have an EIN of the organization include that or however they told you to describe it.
So, the net effect should be a zero amount, but you will have at least reported the 1099-MISC on your tax return. Of course, you will want to be prepared to explain this action to the IRS, so its best to maybe write something up now detailing everything that happened while its fresh in your head and keep any records.
So, to enter this information in TurboTax -
Entering the 1099MISC: The easiest way to enter your 1099MISC form is to use the search function. Log into your account and click Take Me to My Return (must click this first). Use the search icon in upper right hand corner (looks like a magnifying glass) and search for “1099MISC” and click the "jump to 1099MISC” link. This will bring you to the 1099MISC summary page and you can add a 1099MISC form here. Follow the prompts, making sure that you indicate this is not business income (you might get a line of questioning that asks if this is job income or if you expect to keep receiving it - answer no to those as it will trigger the program to think its self employment income).
Entering the negative adjustment: Click on Federal Taxes (on the top menu bar) and then Wages and Income. When the page opens, click "Jump to full list” or a similar item if it is not displaying the full list of income items. Scroll down to the very last item, Less Common Income and click “Show More” to expand the list. Select "Miscellaneous Income, 1099-A, 1099-C". On the page that opens, again choose the very last item, "Other reportable income”. (There is another “other” category that is the first choice - do not use that one). Reply that you did receive this type of other taxable income, then enter a description and the amount.
To make sure that it has been reported correctly you can go to My Account > Tools > View Tax Summary > Preview your 1040 to ensure that it has correctly been reported - you should see two entries on Line 21 with a net effect of zero.
If its Box 7 income -
Here, you will follow a similar process as the above, but the income is going to go to a Schedule C instead. So, you can use the instructions above to enter a 1099-MISC, but now instead of being on Line 21 and putting the negative there, it will be on Schedule C and you will add the offsetting amount as an other expense. After you have entered the income, follow the prompts until you get to the expenses. Enter a miscellaneous or other expense for the same amount as the income using the same description as above.
Note: This is going to require an upgrade to TurboTax Self Employed as you will need that version of the program in order to enter any Business expenses, which is required to report this via this method.
To make sure that it has been reported correctly you can go to My Account > Tools > View Tax Summary > Preview your 1040 to ensure that it has correctly been reported - you should see an entry on line 12 of 0 (assuming you don't have any other business income - if you are reporting other business income on this return, which it sounds like you might be, then you should only see that amount.)
