1099 Box 6: Medical Payments

[MRPLOW]

I have a client that received a 1099 Misc.. Box 6 has a payment for medical and health care payments he recieved from an insurance company, for caring for his elderly mother for part of the year.

I know this amount is taxable income to him, but is it subject to SE Tax?

He is not in the medical care business.
These payments were only received during one year.
The client has a full time job, not related to the medical industry.

Any theories?

[Koss]

Not self-employment

Because your client is not in the trade or business of providing medical care, and especially because the care was provided to his own mother, I think it is reasonable to take the position that this is not self-employment income, and that it is not subject to self-employment tax. So I think you could put it on line 21.

However, the instructions which appear on the back of Form 1099-MISC explicitly direct the recipient to report the amount in Box 6 on Schedule C.

It is not the reporting documents that determine the taxation of an item; rather, it is the nature and character of the income or expense that determines its treatment under the tax law.

At the risk of stating the obvious, the IRS instructions are not the tax law. At best, they are an IRS interpretation of the tax law. But in this case, they may not even be that. They are just instructions, which arguably do not account for all possible variables.

So I stand by my conclusion that the income is not subject to SE tax.

But you better attach an explanation or a disclosure, or your client will probably get an IRS letter.

BMK

[John3cpa]

Line 21 not subj to SE

I have had this situation for years with a client caring for his disabled son. We put it on line 21, not subject to SET with a letter explaining the facts and circumstances. On the average I'd say over the past 10 years we have gotten SE tax assessments 4 times, some times two years in a row other times less frequently. Each time we send the same letter in response and the tax and penalties are abated. So be ready.