I am having the same issue as other posters in this forum. I am a parent trying to help my 13-year-old son file his taxes for the first time. The only reason he received a 1099-NEC is because he received $3,000 in a 'settlement' we reached in mediation in which his previous school had to reimburse him for lawyer fees.
I am having the same problem with TurboTax. It keeps demanding I fill out a Schedule C for my 13-year-old son. He doesn't have a business or profession. He simply received these funds per the legal settlement reached with his previous school.
Every time I refuse to fill out the Schedule C Turbo Tax deletes my 1099-NEC form.
Instead of entering the actual Form 1099-NEC, try entering just the income amount so that it is included as part of the tax return. Keep the Form 1099-NEC in your tax records in the event that the IRS has any questions.
Use these steps:
What exactly is the settlement for?
Just because the payer gave a 1099 doesn’t mean the money this taxable income. The reason the program is interprets a 1099 NEC as self-employment income is because that is what the form is used for, non-employee compensation for work or services performed. At the very least, the payer used the wrong form. But the settlement might not be taxable at all depending on the details.
The settlement was reached in mediation. The school broke several laws including FAPE, LRE, and FERPA laws with my then 12-year-old son who is disabled. We had to hire multiple lawyers to deal with the ensuing legal battles. To pay for these legal fees we had to drain our son’s savings account (as well as ours). In the settlement they agreed to pay our son back the money we had to use from his savings account to pay for his lawyer’s fees.
Unfortunately, they do not specify any of this in the 1099-NEC.
The income is taxable but is not compensation for services performed, so it should be reported as "other income" rather than self-employment income. Try entering the 1099-NEC and then check the box for "this is occasional or hobby income". That will put it on line 8z as "other income."
https://www.irs.gov/government-entities/tax-implications-of-settlements-and-judgments