Misc Income-Subject to Social Security?

[zeros]

Had client bring in a 1099-Misc. I know this would be income to him but could it be listed as an odd job, as it is not recurring, resulting in no self-employment tax to pay? What kind of explanation does the IRS accept in order to explain this income and not being subject to the self-employment tax?

[RitaB]

My contention

Had client bring in a 1099-Misc. I know this would be income to him but could it be listed as an odd job, as it is not recurring, resulting in no self-employment tax to pay? What kind of explanation does the IRS accept in order to explain this income and not being subject to the self-employment tax?

My contention is that if the guy worked, it's subject to SS/MC.

If he had worked as an employee for two days and quit, he would not be getting a refund of SS/MC taxes withheld.

I do realize, you did not ask for my OPINION.

Suspect you could enter the 1099-Misc Box 7 amount as gross on Sch C and deduct an expense on back of Sch C called "Correctly reported on Form 1040, line 21" if this truly is other income. I think it would be wrong to do so in this case, however.

[Kram BergGold]

Disagree

If the work is not in line with his normal occupation and the time span the work occured over is brief then you can argue that it is not subject to SE tax. There is a court case on this. You list the income on Schedule C and then back it off with an explantion to line 21.
The explanation shoul dtouch on out of his normal occupation and temporary.
If this person has no regular occupation or many occupations then I don't believe you can make this arguement and it is SE taxable

[dyne]

If it is NOT a recurring item of income you simply report it on line 21 of page 1 of the return and it is NOT subject to self-employment tax. No schedule C is required.

[Gretel]

Yep, it all depends on being within the range of what person normally does for income. If in line of business then subject to SE if not than it goes on Line 21. I believe IRS has some examples on their website and our board has plenty of input regarding this issue.

[Burke]

If it is NOT a recurring item of income you simply report it on line 21 of page 1 of the return and it is NOT subject to self-employment tax. No schedule C is required.

I agree. No Sche C necessary if you are not going to pay SE tax. However, I agree with RitaB on the intent of the law concerning income subject to SE taxes. I know about the court case. I simply disagree with the ruling. As I do "Fischer" on demutualization stock basis.

[RitaB]

Well

If it is NOT a recurring item of income you simply report it on line 21 of page 1 of the return and it is NOT subject to self-employment tax. No schedule C is required.

Well, I think if it's on a 1099-Misc with an amount in Box 7, IRS will send a letter in 18 months if you don't put it on Sch C and then back it out as an expense. I would do that to keep down the panic in 18 months. Not to mention my time wasted having to "splane" later, Lucy.

Hey, nobody mentioned my two day employee not being refunded SS/MC argument. I thought that was pretty good...

[Burke]

Well, I think if it's on a 1099-Misc with an amount in Box 7, IRS will send a letter in 18 months if you don't put it on Sch C and then back it out as an expense. I would do that to keep down the panic in 18 months. Not to mention my time wasted having to "splane" later, Lucy.

Hey, nobody mentioned my two day employee not being refunded SS/MC argument. I thought that was pretty good...

I have put that income on line 21 many times, rather than a schedule C, but always did schedule SE and computed the tax. Haven't tried it with Box 7 info and NOT done a SE. PS: I thoroughly liked your 2-day employee scenario. Made perfect sense to me!

[Gary2]

My contention is that if the guy worked, it's subject to SS/MC.

Surely it's more complicated than that. When the IRS rules that an activity is hobby income, the fact that labor was involved is generally not accepted as conclusive that it was Sch. C, subject to FICA/SETA.

[dan doshan]

Been awhile now but recall reading the instructions for Sch. SE and I believe it mentions to include income from a trade or business. Also isn't Sch. C used to report income from a trade or business.
As Gary mentions, what about hobby income. There was that case where a retired guy worked some odd jobs installing some siding or whatever for someone and got a 1099Misc. He fought the IRS that this was not self employment income and won. Court did not consider his activtity to meet the test that the fellow was engaged in a trade or business based on the usual test factors.

I now don't just arbritrarily put income from a 1099Misc reported in box 7 on Sch C. Depends on the various circumstances. It can be dicey as I would agree and have seen where later the client does get a letter from the IRS either requiring SE tax and or not noticing that this amount was reported on line 21.

[FEDUKE404]

Definitely.....maybe

This dead horse has been absolutely pulverized by responses in previous threads.

Various "questions":

Did the guy "just do it once?"

Was he really in business?

Did he print any business cards or advertise?

Did he spend the entire summer putting up siding/windows????

And many more.

I think there were even some of those "I've ALWAYS done it this way and never had any problems!" responses.

You will need to make your own decision. The bulk of the posters felt that "work" or similar reported on a Form 1099-MISC does need SE tax calculated. Many others were just as adamant that there are many reasons why such "work" income does not.

In the opinion of several, apparently I, currently working as a tax person, could spend this upcoming summer as a lifeguard in Miami, receive a Form 1099-MISC, and not have to pay any SE tax. (Well, there is always the working with siding/windows argument... ) And then next summer I might do the same thing, for a change of venue, lobster trapping in Maine. Again no SE! (I guess there would be some tax confusion if instead I decided to be a lifeguard next summer in Maine??)

I personally tend to agree with the comments made by RitaB.

And so it goes....my concern remains only with what goes out with my signature attached!

FE

[dan doshan]

Extreme example: Had a client who two years in a row won 1500 or so in the annual fair demolition derby. They reported the amount in box 7 which may or may not have been incorrect. I put on line 21. However, I never thought of putting the amount on Sch. C and then backing it out somehow. Then including on line 21. But that method could have its potential problems also.

[taxea]

Extreme example: Had a client who two years in a row won 1500 or so in the annual fair demolition derby. They reported the amount in box 7 which may or may not have been incorrect. I put on line 21. However, I never thought of putting the amount on Sch. C and then backing it out somehow. Then including on line 21. But that method could have its potential problems also.

I don't think that is necessary. I just put it on ln 21 with statement "not subject to SE tax.

[DaveO]

I think the intent of the person engaging in the activity is important as well as if the activity is in their normal field of endeavor.

I may be more aggressive than some on this topic but here is how I have handled some of my cases.

An off duty police officer providing security is subject to SE tax. (Profit motive)
An attorney coaching his daughter’s softball team is not. (No profit motive)

Schedule “C” is for activities engaged in for profit. I’m a certified beer judge and occasionally I am paid for judging competitions. While taxable income, this is not an activity I engage in for profit. Rather, there is considerable element of personal pleasure which is one of the factors the IRS will use to determine that an activity is a hobby not a business.

You must ask enough questions of your client to meet your own comfort zone.

[RitaB]

Agreed

And, apparently, it can be argued that hanging siding and replacing windows is a hobby or and/or an enjoyable endeavor.

Let's face it: much of this depends on the auditor you get.

And, whether or not you got a 1099. Cause if you didn't get a form, it never even happened, according to my hairdresser's mechanic.