Received a 1099-NEC and W2 for same work as a "leased employee"

[mjd4]

I work remotely for an out-of-state company. When I was hired by this company I was onboarded to a third party that handles the payment processing and W2's. They told me they do this for their out-of-state employees and that I'm technically considered a "leased employee". But it's full-time and I have no other relationship with this third-party.

That all seems fine - I received a W2 from the middle-man. But I also received a 1099-NEC from the actual company I work for for a yearly bonus. I assume they paid this to me directly and not processed through the employee leasing company.

When I go to enter the 1099-NEC in TurboTax it seems to want to consider it self-employment income. I'm wondering the correct way to enter this 1099-NEC considering it's a bonus for the work I'm getting paid W2 for - where is the correct place to enter it?

[Bsch4477]

Someone has to pay social security and Medicare tax on that income which would normally be paid through your W-2.  Since you were issued a 1099-NEC the IRS will be looking for a Sch C to report the income as self employment income where you will owe the self employment tax. 

[Cynthiad66]

Incentive payments aren't considered regular income, so they're subject to different rules. They're reported in Box 3 on the 1099-MISC form as "other income," not on Form W-2 with other wages and payments from which taxes are withheld.

Report it as Other Income.

Follow these steps to enter the bonus. The first few steps might vary a bit in TurboTax Online, depending on what you have already done.

• On the left side click Federal.
• Click Wages & Income.
• Click "I'll choose what I work on" or "Jump to a full list."
• On the screen "Your 2021 Income Summary," scroll all the way down to the last section "Less Common Income." Click the Start button for the last topic, "Miscellaneous Income, 1099-A, 1099-C."
• On the next screen click the Start button for "Other income not already reported on a Form W-2 or Form 1099."
• The next screen asks "Did you receive any other wages?" Select Yes and click Continue.
• The next two screens ask about household employee wages and sick or disability pay. Click Continue on these two screens without entering anything.
• The next screen asks "Did you earn any other wages?" Select Yes and click Continue.
• The next screen asks the source of the other earned income. Select "Employee compensation that was not reported on a W-2." Click Continue. Ignore the note that says not to enter payments for which you will receive a 1099.
• On the next screen, "Employee Compensation Not Reported on a W-2," click Continue.
• If you are filing a joint return, you will get a screen asking which one of you the income is for. Select your name and click Continue.
• On the next screen, "Report Your Wage Income," enter the employer's name and EIN from your W-2. For Total Wages Received, enter the amount of the bonus. For the Reason Code select "H - I received a Form W-2 and a separate Form 1099-MISC and/or 1099-NEC and the income should have been reported on Form W-2." Click Continue.
• Read the next screen, "Report as Wages," and click Done.

How Bonuses are Taxed

[mjd4]

Thanks for the detail! Is this true even though the EIN on the W2 is from the "employee leasing company" and the EIN on the 1099-NEC is the actual company that I'm doing the work for?

[Bsch4477]

A bonus should be reported on a W-2. 

https://turbotax.intuit.com/tax-tips/irs-tax-return/video-are-bonuses-included-in-adjusted-gross-inc...