Unearned Income

[mslough18]

Good morning.  I am working on my son's taxes and have came across something that has me puzzled.  He was 23 years old in 2020 and a student for at least 5 months while in a graduate program.  He coached baseball in 2020 and received a 1099-NEC.  When I place all information into Turbo Tax as instructed, I keep getting that this is unearned income and he has to place my information as the parent.  My question is why would this be unearned income as it was earned for coaching.  From everything I read unearned income is for interest, capital gains, etc.  Any help or insight you can provide would be greatly appreciated.  

[JohnB5677]

Yes, You are correct in what you are stating.  The coaching job would be earned income. 

My next question is, Where did you enter it?  It should be under self employed.  If you entered in another area of the return, (and answered all of the interview questions correctly) it still may have come up as unearned income.

If you post it to Self-Employed, he will also be able to deduct any expenses he may have had.

As a caution:  By being self-employed he will incur an additional 15.3% self-employment tax.  This is Social Security and Medicare tax.

[mslough18]

I added it in the section for 1099-NEC.  I answered everything and then saw the deductions which he didn't have.  Just don't understand why it keeps coming up as unearned income.

[VolvoGirl · Accepted solution]

Are you using the Desktop program or the Online version?  

To report 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 or Premier but if you have any expenses you will have to upgrade to the Self Employed version.  How to enter self employment income

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

After it asks if you received any 1099Misc or 1099NEC it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 15.  The SE tax is in addition to your regular income tax on the net profit.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 14 which flows to 1040 line 8a.  Turbo Tax automatically calculates the SE Tax and Adjustment.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

[mslough18]

Thanks to everyone for your responses.  I am using desktop version of Turbo Tax Deluxe.