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An entry in Box 7 for nonemployee compensation would usually be reported as self-employment income on Schedule C Profit or Loss from Business. The payer of the miscellaneous income did not withhold any income tax or Social Security and Medicare taxes from this miscellaneous income.

Per the IRS Instructions for Form 1099-MISC, page 8 (these instructions are for those creating Forms 1099-MISC to send out to individuals they paid money to during the year):

Self-employment tax. Generally, amounts reportable in Box 7 are subject to self-employment tax. If payments to individuals are not subject to this tax and are not reportable elsewhere on Form 1099-MISC, report the payments in Box 3.

The following are some examples of payment to be reported in box 7.

  • Professional service fees
  • Fees paid by one professional to another, such as fee-splitting or referral fees.
  • Payments by attorneys to witnesses or experts in legal adjudication
  • Commissions paid to nonemployees
  • A fee paid to a nonemployee, including an independent contractor, or travel reimbursement.
  • Payments to nonemployee entertainers for services.
  • Exchanges of services between individuals in the course of their trades or businesses.
  • Taxable fringe benefits for nonemployees
  • Gross oil and gas payments for a working interest
  • Payments to an insurance salesperson who is not your common law or statutory employee.
  • Directors' fees
  • Commissions paid to licensed lottery ticket sales agents
  • Payments to section 530 workers
  • Fish purchases for cash.

The net profit calculated on Schedule C transfers to Schedule 1 (Form 1040), Line 12 for purposes of calculating income tax and to Line 2 of the Schedule SE for purposes of calculating self-employment tax. The self-employment tax rate is 15.3%. This represents 12.4% for social security tax and 2.9% for Medicare tax.

The SE tax is reported on Schedule 4 (Form 1040), Line 57. You can also deduct one-half of your SE tax in figuring your adjusted gross income. This deduction is made automatically in the TaxAct® program on Schedule 1 (Form 1040), Line 27.

The income reported to you on Form 1099-MISC, Box 7, and any expenses applicable to this income, is entered in the Form 1099-MISC (or Business Income) section of the TaxAct® program and will flow to Schedule C.

If you have not already entered the applicable Schedule C information:

  1. From within your TaxAct® return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Business Income in the Federal Quick Q&A Topics menu to expand the category and then click Business income or loss from a sole proprietorship
  3. Click New Copy of Federal Schedule C (Desktop users click Add) to create a new copy of the form or Review to review a form already created
  4. Continue with the interview process to enter all of your applicable business information
  5. When you reach the screen titled Business Income - Income, click Yes
  6. Click Yes to indicate that you received a Form 1099-MISC
  7. Click New Copy of Form 1099-MISC (Desktop users click Add) to create a new Form 1099-MISC
  8. Click Form 1099-MISC Quick Entry to open the Quick Entry window
  9. Enter all of the applicable information from your Form 1099-MISC
  10. Close the Quick Entry window
  11. Assign the Form 1099-MISC that you just entered to the Schedule C that you are currently completing from the Assigned form or schedule drop-down list

If you have already entered the applicable Schedule C information:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Form 1099-MISC in the Federal Quick Q&A Topics menu
  3. Click New Copy of Form 1099-MISC (Desktop users click Add) to create a new Form 1099-MISC
  4. Click Form 1099-MISC Quick Entry to open the Quick Entry window
  5. Enter all of the applicable information from your Form 1099-MISC
  6. Close the Quick Entry window
  7. Assign the Form 1099-MISC that you just entered to the applicable Schedule C from the Assigned form or schedule drop-down list

Please refer to IRS Publication 334 Tax Guide for Small Business for additional information regarding self-employment tax - what it is, who pays it, how it's calculated and reported, etc.

If you determine that this income should not be considered self-employment income (but instead employee income that should have been reported on Form W-2), you would need to report the income on Form 1040, Line 1 and file Form 8919, Uncollected Social Security and Medicare Tax on Wages. This allows you to report the uncollected social security and Medicare taxes on your wages. To complete Form 8919 in the TaxAct program:

  1. From within your TaxAct return (Online or Desktop), Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Taxes in the Federal Quick Q&A Topics menu to expand the category and then click Uncollected social security and Medicare tax on wages
  3. Click New Copy of Form 8919 Worksheet to create a new copy of the form or click Review to review a form already created. While on this screen, click IRS Form Instructions on the right side of the screen for additional information to help determine if this is the correct thing to do in your situation.
  4. The program will proceed with the interview questions for you to enter the appropriate information.

The wage information you enter here will flow to Form 1040, Line 1 and the taxes calculated will flow to Schedule 4 (Form 1040), Line 58b. DO NOT enter the wage information a second time in the program by entering the actual Form 1099 or a Form W-2 in the Q&A, as this would double the income in the return.

If you determine that the income should be reported on Schedule 1 (Form 1040), Line 21 (not a common situation and the IRS may question it to confirm that it is not actually self-employment income), below are the instructions for entry. The actual Form 1099-MISC is not electronically filed with the return; only the information that it contains is electronically filed so the steps below will place that income amount on line 21 if you have determined that is accurate for your situation:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Scroll down and click Other Income in the Federal Quick Q&A Topics menu to expand the category and then scroll down and click Prizes, awards and other miscellaneous income
  3. On the screen titled Miscellaneous - Amounts Received, enter a description (Form 1099-MISC Box 7 would sufficiently describe it) and an amount in the blank boxes.

When you print your return, the text See Attached will print to the left of Schedule 1 (Form 1040), Line 21. An attached sheet will print with the return titled Other Income - Supporting Details for Schedule 1 (Form 1040), Line 21 which will print both the description and amount that was entered.


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