Should crypto income with form 1099-MISC go into Schedule B or not? Turbo tax doesn't know how to handle this income

just to clarify TurboTax treated this income as self employed and calculated self employed tax on top of income tax. In reality it's just an interest income paid in crypto that is considered a property and therefore is given MISC form instead of INT form. Can I just put this income to schedule B with all other INT forms? 

Crypto income reported in Box 7 1099-Misc is business income and is entered on Schedule C. You can't take amounts on 1099-Misc and call them income from 1099-B.

Q-13: Is a person who in the course of a trade or business makes a payment using virtual currency worth $600 or more to an independent contractor for performing services required to file an information return with the IRS? A-13: Generally, a person who in the course of a trade or business makes a payment of $600 or more in a taxable year to an independent contractor for the performance of services is required to report that payment to the IRS and to the payee on Form 1099- MISC, Miscellaneous Income.

IRS Notice 2014-21

Thank you for your answer. Would the reply change though if I have income reported in the Box 3 "Other income". Again the nature of the income is just at interest earned on deposit made and not any work performed like mining or anything like that. 

You have the option of contacting the payer and seeing if they will re-issue this on a 1099-INT. However, they probably will not. Considering the nature of the crypto space, you're lucky you received a tax form, period. Sounds like staking income, but without details, I can't be sure of the specifics.

Absent a 1099-INT, I strongly recommend going with self-employment income on this. The upside to this is that you can deduct ordinary and necessary expenses against this income. In your case, maybe you had a TradingView or other technical analysis software membership that you relied on when researching this asset. Maybe there were fees from the exchange on which this income was earned. Maybe you had a membership to a trading group. All these are common expenses in the crypto space. If so, you can deduct these against this income if you report it as self-employment. 

@RandomDude34345

This is great and makes a lot of sense. Thank you for your response. 

Glad I could help!

@RandomDude34345

I have this same problem. I have income from staking crypto on a 1099-MISC with the amount in Box 3. I do not want to and should not have to pay 15.3% Self-Employment tax on top of ordinary income tax! This is NOT self-employment and I do not have any expenses to deduct.

Turbo should provide a checkbox exemption for crypto staking like they do for prize winnings and lawsuit awards, etc.

I'll see if the Exchange will reissue me a 1099-INT, but otherwise I will just report it as Miscellaneous Income like my other staking income for which I was not given a 1099 even though it was well over $600.

I realize the IRS may come knocking about the 1099-MISC form that they received and I didn't file. There's just no way this is self-employment. That would be like interest from my bank being self-employment and subject to self-employment tax.

Please follow these steps to report 1099-Misc as other income:

1. Open or continue with your return
2. Click on Show more next to Other Common Income under Income & Expenses section
3. Click on Start next to Form 1099-MISC
4. Select Yes to the question Did you get a 1099-MISC?
5. On the next screen, enter the information on the 1099-MISC form you received. The amount should be reported in Box 3 as Other income 
6. Answer the questions on the screens that follow. When you get to the screen that says Did the xxx involve an intent to earn money? Select No, it didn't involve an intent to earn money.
7. Continue, then Done.

@widestrides

On the 1099-MISC instructions for reporting the amount in Box 3:

Thanks for your reply. I did that but it still put it as self-employment income and added 15.3% Self-employment tax.

There was no question about intent to earn money. (And I did intend to earn money as it was an Interest program.)

There was:

"I didn't actively participate in the operation of this business." 

Did you try to enter the 1099-Misc through Other Common Income section instead of Self-Employment section? You can enter the 1099-Misc form in both sections, but one will take you to the self-employment taxes and the other lets you report it as other income.

Yes, I did, but it still puts it into Self-Employment, even if entered in the Other Common Income, Form 1099-MISC section.

If I call it Prize Winnings or Awards, it doesn't go as Self Employment. That's the only way to get TurboTax to get it right for me. These are called Staking "Rewards," so it sort of fits.

1) Log in and go to Income & Expenses (tab at top).

2) In Your Income and expenses, scroll to Less Common Income.

3) Click Show more, scroll down, and click Start next to Miscellaneous Income.

4) On the next page, scroll down and click Start next to Other reportable income.

5) On the Any Other Taxable Income page, click Yes.

6) Make your entries on the Other Taxable Income page. You will aggregate all your airdrops/promo/staking income and put them in the first box.

Thanks, but this does not allow me to report my 1099-MISC income from staking. 

It clearly says: "Do not enter income reported on Form 1099-MISC.

The IRS will be looking for my 1099-MISC. But when I report my 1099-MISC on TurboTax under "Income from Form 1099-MISC," it forces it into Self-Employment and adds 15.3% Self-Employment tax on top of the regular Income tax. 

When I click on the question, "What is I got my 1099-MISC for something other than a job?" it says, "You might have gotten your 1099-MISC for prize money, a lawsuit settlement or another reason that wasn't work-related. In that case, simply type in the reason (like "prize money" or "lawsuit settlement"). But if I type in Crypto Staking Rewards or Crypto Interest Income, it forces it to Self Employment and adds 15.3% Self-Employment tax on top of the regular Income tax.

This is clearly a glitch in the TurboTax system. There is no way to report a 1099-MISC without it being force into Self Employment and adding 15.3% Self Employment Tax unless it is one of those "uncommon situations" like "I owned a farm," "prize winnings," "lawsuit settlement," etc. TurboTax needs to add one for "Crypto Staking Rewards and Crypto Interest Income reported on a 1099-MISC." I checked "Prize Winnings and Awards" because this income is called "Staking Rewards." I'll just have to explain that to the IRS if they ask.

So, my path was: 

Wages and Income > Miscellaneous Income > Other reportable income > Start > Other Taxable income.

Crypto mining is considered a trade or business by the IRS therefore those earnings are subject to self-employment tax.  However, the IRS has not issued clear guidance on staking rewards.  All in all, there are different types of staking, if you putting any work into the staking, then it should be reported as Self-Employment income.  If you basically, made a deposit into an account and are letting it earned interest then it would be reported as other income.

Crypto Mining tax treatment

(Edited 2/21/2022 @ 12:24PM PST) @widestrides 

Thanks.

Mining may be considered a trade or business, because it obviously involves some work and expenses and equipment, but not staking, which is just passive income, like earning interest at a bank.

Staking was not addressed anywhere in that link you sent me. 

Given that all of your experts are giving me mixed signals in this thread, I do not think this issue is settled.

I will research it further with the IRS and see if other tax software does the same as TurboTax. I'm going to put it in as Prize Winnings and may just have to have a Chat with the IRS if necessary. 

Most folks who stake do not receive a 1099-MISC, and not just because they earned less than $600. That's millions or maybe tens of millions of dollars being filed as ordinary income, not self-employment income with the added 15.3% self-employment tax.

Please see this from a TurboTax Help article.

How do I report a crypto airdrop?

Cryptocurrency airdrops are (usually) free distributions of coins or tokens into multiple wallet addresses to promote and drive the adoption of a new virtual currency.

Recently, the IRS ruled that airdrops, along with promos and staking rewards, only become taxable once the taxpayer "acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency." Airdropped currency that's not yet usable or accessible would therefore not be taxable until the taxpayer can exercise control over it.

Step 1 - Convert to USD

Step 2 - Enter in TurboTax

Once you have the USD values, here's how to enter them into TurboTax:

1. With your return open, go to Federal then Wages & Income
2. Open the Less Common Income section and select Start or Revisit next to Miscellaneous Income, 1099-A, 1099-C
3. On the next screen, select Start or Revisit the very last entry, Other Reportable Income
4. Answer Yes on the Any Other Taxable Income? screen
5. On the next screen, enter a description (for example, "crypto airdrop") and then enter the total USD amount
6. Select Continue when finished.

Crypto staking

Thanks, Colleen, but my Reply to your earlier message three hours ago still holds true.

Thanks, but this does not allow me to report my 1099-MISC income from staking. 

It clearly says: "Do not enter income reported on Form 1099-MISC.

The IRS will be looking for my 1099-MISC. But when I report my 1099-MISC on TurboTax under "Income from Form 1099-MISC," it forces it into Self-Employment and adds 15.3% Self-Employment tax on top of the regular Income tax. 

When I click on the question, "What is I got my 1099-MISC for something other than a job?" it says, "You might have gotten your 1099-MISC for prize money, a lawsuit settlement or another reason that wasn't work-related. In that case, simply type in the reason (like "prize money" or "lawsuit settlement"). But if I type in Crypto Staking Rewards or Crypto Interest Income, it forces it to Self Employment and adds 15.3% Self-Employment tax on top of the regular Income tax.

This is clearly a glitch in the TurboTax system. There is no way to report a 1099-MISC without it being force into Self Employment and adding 15.3% Self Employment Tax unless it is one of those "uncommon situations" like "I owned a farm," "prize winnings," "lawsuit settlement," etc. TurboTax needs to add one for "Crypto Staking Rewards and Crypto Interest Income reported on a 1099-MISC." I checked "Prize Winnings and Awards" because this income is called "Staking Rewards." I'll just have to explain that to the IRS if they ask.

.

Change a couple of answers to your questions in that 1099 entry, and you can get the income to show as Other Income, not Self-Employment.    Delete that 1099 you started and re-enter it following these steps and the income will go to Line 8 (not SE).    @widestrides

To enter other reportable income, on a 1099-MISC form, follow these steps:

1. Sign into your TurboTax account.

2. Select Federal from the left side menu.

3. Type 1099-Misc in the search bar and click on Jump to 1099-misc.

4. On the Did you get a 1099-MISC? screen, select Yes.  If you come to the 1099-MISC Summary screen, select +Add Another 1099-MISC located under the Total.

5. On the Let’s get the info from your 1099-MISC screen, enter the information on the form and Continue.  ($ should be in Box 3)

6. On the Describe the reason for this 1099-MISC screen, enter a description (crypto staking).

7. On the Does one of these uncommon situations apply?  select any option and continue with the onscreen interview until complete. 

8. If you select None of these apply, you have a few more questions to enter.   Keep going.

9. On the Did the XXX involve work that’s like your main job? screen, select No, it didn’t involve work like my main job.  If it’s like your main job, this may be self-employment income. 

10. On the How often did you get income for XXX? screen, select I got it in 2021.  Note: If you have done this work in the past and plan on doing this in the future, this may be self-employment income. 

11. On the Did the XXX involve an intent to earn money? screen, select No, it didn’t involve an intent to earn money and Continue.  Note: An intent to earn means obtain (money) in return for labor or services with the intent on making a profit.

Normally, you do not get a 1099-MISC for these.   Had you not received the form and needed to report the staking income, you would need to use Coleen's step above to get it reported.   And since most of these transactions are not on a 1099,  the default instructions are to enter the income through Other Reportable Income which is a non-1099 entry.    But since you do have a 1099-MISC, you should enter it in Other 1099-MISC income.   The income ends up in the same place on your tax return.  

You said, "On the Does one of these uncommon situations apply?  select any option and continue with the onscreen interview until complete."

Thanks! That is what I did! I checked "Prize Winnings and Awards" because this income is called "Staking Rewards." Close enough.

Is it okay to do that?

I'll guess I'll just have to explain that to the IRS if they ask, because it is certainly not Self Employment.

Why doesn't TurboTax fix this?

Thanks!

Yes, that is fine to choose Prize Income as the category.   Selecting Prize Winnings will put the income on Line 8 as well.    If you did not have the Form 1099-MISC and received a staking award, you could use Coleen's steps above to get the income in the same place - not self-employment.   However, since you have the 1099-MISC, which is rare, there are some extra steps you have to take to get the income reported properly.    How you enter the income depends on the Form your received and the FAQ is geared towards staking awards and airdrops NOT being reported on a Form 1099.    @widestrides

Will the IRS see my 1099-MISC as Prize Winnings? Or is that just under the hood on TurboTax? I don't want them to think this was from gambling or lotteries.