Tax Treatment of a 1099-NEC

[AnmarieA]

My client's young daughter received a 1099-NEC for assisting at a seasonal "Renaissance Fair". Does this income need to be reported on a Sch C as this individual does not have a business to speak of and does it have to be subject to SE taxes. I am thinking the individual could have issued her a 1099-MISC as other income or paid her via W-2 wages instead of a NEC. Can I report the income as other income not subject to SE tax since as she truly does not have a Sch C business. If not, do I allow the daughter to deduct her mileage to/from fair as business expenses? She really has no other expenses associated with this income.

If you have seen this before I would love your input. I am not certain of the proper business treatment of this 1099 income. 

Thank you in advance for your assistance.

Best regards, Anmarie

[Camp1040]

If it truly is a one time occurence and not income earned in her normal course of "earning" I have entered that type of income as other income on schedule 1, but that's me.

[BobKamman]

You're telling us everything but what we would like to know:  How much was it?  If it's less than $400 you don't have to worry about SE tax anyway.  If it's more than $4,000, it's only fair that she pay tax on it regardless of age.  

[qbteachmt · Accepted solution]

"as this individual does not have a business to speak of and does it have to be subject to SE taxes."

Providing services as an independent contractor would be subject to SE tax. That's what happens when you do work.

"could have issued her a 1099-MISC as other income or paid her via W-2 wages"

Was she performing, or dumping trash, or cooking, or? It is common to get paid 1099-NEC for performing, and issued when the payment(s) from that one entity to this taxpayer reaches $600 or more. That's how the IRS requires it.

The only time I've seen a band get caught in "shoulda been hired as employees" was when Willie Nelson's band played a fair in Montana, and the State tried to claim worker misclassification. The State lost this argument.

If your taxpayer showed up for an event and essentially provided everything it took for them to do whatever was done, that would be 1099-NEC income. That would be SE. Having little to no expenses would be the ideal situation. It does go on Sched C. You would have to know if the mileage qualifies as business or as commuting to the job site. Example: out of town overnight and requiring a rest period, away from home = business miles as part of business travel.

If you want to claim worker misclassification, because this person should have been classified as an employee, that is certainly an option:

https://www.dol.gov/agencies/whd/flsa/misclassification

[rcooley25]

I agree. Thats what I do.

[AnmarieA]

It is over $4000 as she assisted with the fair for its 3 month duration. If the amount received was immaterial I most likely would not have asked the question and would of used my better judgement for this circumstance. Thank you for your response.

[AnmarieA]

Thanks for your response. You basically answered my question that the 1099 is correct as she was a cashier for the event. Most likely the person in which she worked for was either not set up to process payroll or was trying to avoid the Employer tax expense as this was truly an employer/employee relationship as she went to the fair at times determined by the company and performed tasks as instructed. She was not a true independent contractor that determined her own hours/tasks. 

Most likely will not issue a complaint based on the fact most likely my taxpayer's daughter enjoyed what she was doing and plans to do it again next year.

Thanks for your response.

[AnmarieA]

Thanks for all the responses. My gut said it was SE income without any expenses as she was basically an employee treated as a non-employee hence the 1099-NEC and her miles to the fair were commuting only and not "true" business expenses. 

I appreciate the input and all of you confirmed what I believed to be true. 

[Camp1040]

Then file a schedule C. If you knew so much then why bother to ask here and the give a smart ass reply.

[rcooley25]

What side of the bed did out get out of this  morning?

[Camp1040]

The side you wake up on after drinking fireball you bought at a gas station and finding out it has no alochol content!

[qbteachmt]

"She was not a true independent contractor that determined her own hours/tasks."

If that is an event operator that travels to different locations and hires local help, it is not unusual for them to "pay in cash" (which nowadays is more likely Venmo), but not using payroll. Except for a core for operations, everyone else would be local hire independent labor.

The only time I've seen payroll for all staff is for a recurring, but stationary, event. Think Coachella or Electric Daisy or Electric Forest.

[TaxGuyBill]

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@AnmarieA wrote:

 she was a cashier for the event. Most likely the person in which she worked for was either not set up to process payroll or was trying to avoid the Employer tax expense as this was truly an employer/employee relationship as she went to the fair at times determined by the company and performed tasks as instructed. She was not a true independent contractor that determined her own hours/tasks. 

The correct way to do it then would be to file a SS-8 and then a Form 8919 with the tax return.

[BobKamman]

You can do the 8919 without the SS-8.  But the client should be advised of the warning:

"If you enter reason code G, you or the firm that paid
you may be contacted for additional information. Use
of this reason code isn’t a guarantee that the IRS will
agree with your worker status determination. If the
IRS doesn’t agree that you are an employee, you may be billed
for the additional tax, penalties, and interest resulting from the
change to your worker status."