How to properly file 1099-NEC from student internship on taxes?

Thanks for the explanation! That makes more sense now. So even though it was just a temporary internship, the IRS still views it as self-employment because of how they paid him. Quick follow-up question - do you know if there's a minimum amount of 1099-NEC income before you have to file Schedule C? Like if he only made $2,700, is there any simplified way to report it?

There isn't a minimum threshold for filing Schedule C - any amount received on a 1099-NEC should be reported there. However, there is a $400 threshold for when you need to pay self-employment taxes. Since your husband earned $2,700, he'll be above that threshold and will need to pay self-employment tax. For the simplified reporting question, unfortunately no - the IRS requires Schedule C for 1099-NEC income regardless of the amount. But TurboTax should make this pretty straightforward, and it will walk you through potential deductions that could help reduce the taxable amount.

How does this taxr thing actually work? Does it just give generic advice or does it specifically look at your tax forms? I've got a similar situation with my son who did freelance web design while in college.

I'm a bit skeptical about tax tools beyond the major ones like TurboTax or H&R Block. How does taxr.ai handle state taxes? My daughter got a 1099 for her social media marketing gig but she did it from two different states while at college and then home for summer.

The tool actually reviews your specific situation and documents - you upload your tax forms and it uses AI to analyze them and identify the proper filing approach and potential deductions. It's not just generic advice but tailored to your specific forms and circumstances. For state taxes, it handles multi-state situations quite well. It helped me figure out how to allocate my daughter's income between states based on where she performed the work. The system guides you through determining which state forms you need and how to report correctly on each one based on residency status and where income was earned.

Wait how does this actually work? Do they just sit on hold for you or something? I've been trying to reach the IRS for weeks about a similar issue.

Oh come on, there's no way to skip the IRS phone queue. They must just use auto-dialers which is something anyone can do. I spent 4 hours on hold last month and eventually gave up. Doubt this service is any better than just calling repeatedly yourself.

It's actually a really clever system. They use a combination of technology that knows the optimal times to call and which IRS departments have shorter wait times. They place the call and navigate the initial prompts, then when they have an IRS agent on the line, they connect you directly. You don't have to sit on hold at all. They're actually an official partner with several government agencies, not just some auto-dialer service. When I used it, I registered, got a text when my call was up next, and then was connected directly to an IRS agent who was already briefed on my general question category. Whole process took about 15 minutes of my time versus the hours I'd wasted trying on my own.

That's super helpful info - I had no idea about the additional SE form! Will TurboTax automatically add that form if we enter the 1099-NEC info, or do we need to specifically look for it? Also, is there any way to reduce that 15.3% tax hit?

Yes, TurboTax will automatically add Form SE when you enter 1099-NEC income - that's one of the benefits of using tax software instead of doing it manually. It handles all the required forms based on your inputs. The best way to reduce the SE tax is to make sure you claim all legitimate business expenses on Schedule C, since SE tax is calculated on your net profit (income minus expenses). Look for anything related to the internship - transportation costs, home office if applicable, portion of internet/phone, required software or supplies, professional development costs. Every $100 in legitimate business expenses you claim saves you about $15 in SE tax.

I've used FreeTaxUSA for the past 3 years with my freelance 1099 income. It handles Schedule C perfectly and is WAY cheaper. Federal filing is free and state is like $15. The interface isn't quite as polished as TurboTax but it asks all the same questions and gets the job done. Saved me over $100 compared to TurboTax's "self-employed" tier.

Thanks for the recommendation! Just tried it out and you're right - it's handling my daughter's 1099-NEC just fine and walking through all the same deduction questions. The interface is a bit more basic but totally functional. Crazy that TurboTax wants to charge so much extra for essentially the same service!

This is really helpful context! I hadn't thought about the misclassification angle, but you're right that we still need to deal with what we actually received. The SS-8 form is interesting to know about for the future. Quick question about the American Opportunity Tax Credit - does that apply even if he's filing Schedule C income? I wasn't sure if having self-employment income would affect his eligibility for education credits since he's technically not just a student anymore in the eyes of the IRS.

Yes, the American Opportunity Tax Credit is still available even with Schedule C income! Having self-employment income doesn't disqualify you from education credits. The AOTC is based on qualified education expenses and enrollment status, not your income source. However, there are income limits to be aware of. For 2024, the credit phases out for married filing jointly between $160,000-$180,000 of modified adjusted gross income. Since your husband only made $2,700 from the internship and you mentioned your tax situation is usually simple, you should be well under those thresholds. The AOTC can be worth up to $2,500 per year per student, so it could definitely help offset that self-employment tax burden. Make sure you have Form 1098-T from his school showing tuition payments, and keep receipts for any required books/supplies you purchased.

Great point about quarterly payments! I'm actually in a similar boat - my son is a computer science student and will likely have more freelance programming work coming up. How do you calculate what the quarterly payments should be? Is there a simple formula, or do you need to estimate your whole year's income upfront? Also, what happens if you overestimate and pay too much in quarterly payments? Do you just get a bigger refund when you file, or is there some penalty for overpaying?

For quarterly payments, you generally want to pay either 100% of last year's total tax liability (110% if your prior year AGI was over $150K) or 90% of the current year's expected tax liability - whichever is smaller. Since your son probably had minimal income last year, you'll likely need to estimate this year's total tax. A rough calculation: take his expected annual 1099 income, multiply by about 15.3% for self-employment tax, then add regular income tax based on your family's bracket. Divide that total by 4 for quarterly payments. The IRS has Form 1040ES with worksheets that walk through this calculation. If you overpay quarterly, you absolutely just get a bigger refund when you file - there's no penalty for overpaying. It's actually safer to slightly overestimate than underestimate. The IRS is happy to hold your money interest-free and give it back later! The penalties only kick in if you underpay by more than $1,000 or don't meet the safe harbor percentages I mentioned.