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March 18, 2023
Question

received 1099 nec but not self employed

  • March 18, 2023
  • 1 reply
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received a 1099 NEC for a class action lawsuit where i gave a deposition, how to i claim this and not pay self employment taxes 

    1 reply

    March 18, 2023

    It depends on what the payment represented. If the settlement you received represented back pay for work you performed as an independent contractor, Schedule C business, then the settlement could be subject to self-employment tax.

     

    Check the terms of the legal settlement. Whether any of the amount you received is taxable depends on the type of settlement proceeds you received and what they represented. If you received punitive damages, this would be taxable income, and often a Form 1099-MISC would be issued. 

     

    Property settlements for losses in the value of a property that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your tax return. However, you must reduce your basis in the property by the amount of the settlement. If the property settlement exceeds your adjusted basis in the property, the excess is income. 

     

    See IRS Publication 4345 for more information.

     

    Form 1099-NEC is generally intended to be used for nonemployee compensation that is earned by a contractor or other self-employed individual, but you can enter it in TurboTax and identify the reason for the payment if it was other than self-employment income:

     

    • In Wages and Income, select Other Common Income and See More
    • Select Form 1099-NEC
    • Answer the questions that appear, and enter a description of the reason for the payment
    • At the screen, "Does one of these uncommon situations apply?", select "This is not money earned as an employee or self-employed individual, it is from a sporadic activity or hobby (this is not common)" if that is the choice that best reflects the nature of the payment

    For more information on Forms 1099-NEC, see this TurboTax article.

     

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