How to report 1099-MISC Box 7 bonus ($0 in box 3), but not an independent contractor and not self employed (payment from client of my employer)

Question

I work for a concessions company, but I received a 1099-MISC from the company's client (the team). It's an end-of-year discretionary bonus for taking care of guests of the team as part of my normal job with the concessions company. I don't work any extra hours outside of the work for the concessions company.

I'm not an independent contractor under IRS definitions (my services are controlled by my employer, the concessions company) and I'm not self-employed either (all work is done as part of my job with the concessions company). This bonus would go away if my employer had me work in a different area.

It seems the IRS will assume it should be reported either on Schedule C or SE because it is in Box 7 and may ask me for missing taxes later if I only try to report the bonus as Other Income on Line 21 of Schedule 1.

Should I report the 1099-MISC as Other Income and how would I best describe it? Would calling it a "Year end award" suffice? Is it possible the team should have reported the bonus in Box 3 instead so I should ask them for a corrected 1099-MISC? Would I need to file a Form SS-8 to get a definitive answer from the IRS?

Answer 1

The IRS has a question-and-answer article that seems to apply to your situation:

If payment for services you provided is listed in box 7 of Form 1099-MISC, Miscellaneous Income, the payer is treating you as a self-employed worker, also referred to as an independent contractor.

• You don't necessarily have to have a business for payments for your services to be reported on Form 1099-MISC. You may simply perform services as a non-employee.

• The payer has determined that an employer-employee relationship doesn't exist in your case.

If you weren't an employee of the payer, where you report the income depends on whether your activity is a trade or business. You're in a self-employed trade or business if your primary purpose is to make a profit and your activity is regular and continuous.

This seems to fit you, because although you are an employee of the concession company, you are not an employee of the company’s client, who is the one who paid you this money. It goes on to say:

If you're not an employee of the payer, and you're not in a self-employed trade or business, you should report the income on line 21 of Schedule 1 (Form 1040), Additional Income and Adjustments to Income and any allowable expenses on Schedule A (Form 1040), Itemized Deductions. Refer to Not for Profit Activities in Chapter 1 of Publication 535, Business Expenses for allowable nonbusiness expenses.

To me, it sounds like you are not self-employed and you do not have a business. You did not work any extra hours for the client, so they aren’t really a customer of yours. They just decided to give you money. It seems to me that the right place for this income to go is Schedule 1, line 21, and you will have no deductible business expenses. And although “the payer is treating you as a self-employed worker,” this article from the IRS makes it clear that there are circumstances where this is not actually the case.