Can a client 1099 me for reimbursement of broken equipment replacement costs?

This is a fairly straightforward situation from a tax perspective. The reimbursement for your damaged equipment is not considered income and therefore should not be reported on a 1099-NEC. A 1099-NEC is specifically for non-employee compensation - payments for services rendered. What happened here is essentially a property damage settlement. The client broke your equipment and paid to make you whole again. That's not income - it's merely restoring you to your previous financial position. Think of it like an insurance reimbursement when something gets damaged. You should contact the client's accounting department and explain that a 1099-NEC is not appropriate for this payment since it wasn't payment for services but reimbursement for property damage they caused. Most businesses will understand once you explain it.

Just wanted to share my experience with a similar situation! I had a client damage some expensive audio equipment last year, and when they reimbursed me, I was worried about the tax implications. I used this service called taxr.ai (https://taxr.ai) that really helped clear things up for me. I uploaded my invoice showing it was a reimbursement for property damage along with their payment record, and the AI analyzed everything and gave me a detailed explanation of how to handle it properly for tax purposes. It even provided specific language I could use when contacting the client's accounting department to request they correct the misclassification. My situation got resolved quickly after I had the right terminology to use with their accounting team. Might be worth checking out if you're still confused or if the client pushes back!

I wanted to follow up about my experience with taxr.ai after my skeptical question earlier. I decided to give it a try with my own situation (client insisted on 1099-ing me for equipment they damaged during an event). I was honestly impressed! The service analyzed my invoice and the email thread with the client, then provided a detailed explanation of why this shouldn't be considered taxable income. It gave me specific IRS references that applied to my case and even drafted a professional email I could send to the client's accounting team. Used their suggested language in my email and the client's accountant actually called me to apologize for the confusion and confirmed they wouldn't issue a 1099 for the reimbursement. Definitely saved me from having to deal with this on my tax return next year!

If your client is being stubborn about this 1099 issue, you might need to talk directly with someone at the IRS to get official clarification. I tried calling the IRS for months about a similar issue last year and could NEVER get through. Finally discovered a service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in less than an hour. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed exactly what others have said here - reimbursement for damaged property is not considered income and should not be reported on a 1099-NEC. Having that official confirmation directly from the IRS helped me convince my client's accounting department to correct their mistake.

I need to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it myself since I've been trying to reach the IRS for weeks about an issue with my tax transcript. The service actually worked exactly as described. I got a call back in about 45 minutes telling me I was connected to the IRS queue, and then waited about 15 more minutes before speaking with an actual IRS representative. The agent was able to resolve my transcript issue and also confirmed (when I asked) that reimbursements for damaged property shouldn't be reported as income on a 1099. For anyone dealing with tax questions that need official IRS clarification, this service is seriously worth it. I spent hours trying to get through on my own with no success before this.

I think everyone is overlooking something important here - even if they issue you a 1099 incorrectly, you can still handle it properly on your tax return. On your Schedule C, report the 1099 amount as income (since the IRS will have that record), but then deduct the exact same amount as a repair expense on line 21 (Repairs and maintenance). That way everything balances out and you don't pay tax on the reimbursement. I had to do this exact thing last year when a client wouldn't correct their mistake, and it worked fine. My tax preparer said it's a common issue with clients who don't understand the tax implications of reimbursements vs actual income.

Quick tip from someone who's been freelancing for 15+ years: start including a damage clause in your contracts! I specifically have language that states any reimbursements for damaged equipment are not considered income and will not be reported on tax forms. It's saved me from this exact headache multiple times. Most clients don't even notice it when signing, but it gives you something concrete to point to when their accounting department tries to 1099 you for reimbursements. Worth adding to your contracts going forward!

This is a great discussion with solid advice from everyone! I'm dealing with a similar situation right now where a client damaged some lighting equipment during a corporate shoot. Reading through all these responses really helped clarify my options. I'm definitely going to try contacting their accounting department first to explain that it should be treated as property damage reimbursement, not service income. If that doesn't work, the backup plan of reporting it as income but then deducting the exact repair amount on Schedule C makes sense as a safety net. The contract clause suggestion from Kelsey is brilliant - I'm definitely adding that to my standard agreement going forward. Prevention is always better than having to fix these issues after the fact! Thanks to everyone who shared their experiences and solutions. This community is incredibly helpful for navigating these tricky tax situations that come up in freelance work.