1099-Misc Box 3 income that maybe should be Box 7

Question

As my main job, I am a college math professor (W2 wages). Last summer (2018), independent of my main employer, I worked teaching math to high school students and was paid 10K for it. I received a 1099-MISC for this work with the money shown in Box 3. I've received 1099-MISC Box 7 payments (mostly honoraria) in the past and always reported them on Schedule C.

My impression based on researching Box 3 is that it is intended for oddball payments far from ones main line of work, and doing work similar to ones main job is usually Box 7. I am concerned that this income belonged in Box 7 and the IRS will fine me for not paying self-employment tax if I simply report it on Line 21 of the 1040.

It seems to me I have three options

1. File Schedule C, as if the payment was in Box 7. (I would not deduct any business expenses.)

2. Report the income on Line 21. In which case, what do I call it?

3. Contact the people who paid me and ask why they think this is Box 3 and if they would like to amend it.

Any risks, benefits or options I am missing?

Answer 1

I am not a tax professional by trade or training.

Correct, honoraria over $600 are taxable and require filing schedule C. Self employment tax will apply.

This appears to be an error on the part of the issuing institution. Based on the description of Box 3 from the instructions for 1099-MISC, there is no reason that this would apply to you. There are some confusing bits in there that might have misled the accountant.

Also enter in box 3 prizes and awards that are not for services performed.

Emph mine. Since you performed a service by receiving this award, Box 3 does not apply.

Prizes and awards received in recognition of past accomplishments in religious, charitable, scientific, artistic, educational, literary, or civic fields are not reportable if:

• The winners are chosen without action on their part,

• The winners are not expected to perform future services, and

• The payer transfers the prize or award to a charitable organization or governmental unit under a designation made by the recipient. See Rev. Proc. 87-54, 1987-2 C.B. 669

This is the tricky one. While it would seem that you are not expected to perform a future service as the honorarium is issued upon completion of the seminar/symposium and you were chosen without advertising it, this is not recognition of past accomplishments. You were asked to come perform an academic service and paid for your time.

It would be wise to ask the issuing institution to correct the form.

I am not a tax professional by trade or training.

Answer 2

From your description, it sounds like it probably would have been a better choice for them to put this income in Form 1099-MISC Box 7 (Nonemployee compensation) instead of Box 3 (Other income). However, ultimately, it doesn't matter to you which box it is in.

A 1099-MISC is an information return to the IRS, but it does not directly affect your taxes unless it shows tax withheld. It certainly indirectly affects your taxes, because it informs the IRS that you might have received taxable income, but ultimately, it is up to you to report your income correctly, whether or not it gets reported correctly on a 1099-MISC.

As a result, it doesn't matter if the amount is in the "correct" box or not on the 1099-MISC.

If you received $10K for teaching as a non-employee, then it probably makes the most sense to report this income as part of a Schedule C business. You will be able to deduct business expenses if you have any, and you'll need to pay self-employment tax on the profit of your business. This would be your Option 1.

There is no need to try to get the 1099-MISC reissued.