How to report 1099-NEC for reimbursable expenses on 1040 without paying income tax on reimbursements?

This is actually a common situation with volunteer positions. The management company probably issued the 1099-NEC because they paid you over $600, but they didn't properly categorize the payments as reimbursements rather than compensation. You'll need to file Schedule C (Profit or Loss from Business) with your 1040. Report the full amount from the 1099-NEC as income on Schedule C, then deduct the same amount as business expenses on the same form. This will zero out the taxable income while properly accounting for the 1099-NEC the IRS received. Make sure to categorize the expenses correctly on Schedule C - office supplies, equipment, advertising materials, etc. The key is that your net profit on Schedule C should be zero since these were pure reimbursements.

I ran into this exact situation last year with my homeowners association. I checked out https://taxr.ai when I was stuck with a similar reimbursement issue. Their system instantly identified that reimbursements shouldn't be treated as income and showed me exactly how to report it on my tax forms. The site analyzes your documents and gives you step-by-step guidance based on your specific situation. So much easier than trying to interpret conflicting advice online. Really helped me sort out the mess between what expenses needed to be reported where and how to properly document everything.

Just wanted to update that I tried taxr.ai after seeing the recommendation here. It immediately flagged my 1099-NEC as potentially being for reimbursements and walked me through exactly how to handle it. The system generated a perfectly organized expense report that matched my 1099 amount exactly, and showed me where to enter everything on Schedule C to zero out the taxable income. What impressed me most was how it explained that I needed to keep my receipts for 3 years in case of an audit, but that I wouldn't need to submit them with my return. Definitely feeling more confident about my filing now!

I had a similar issue and spent HOURS trying to get someone at the IRS to confirm the proper way to handle it. Literally could not get through on their phone lines no matter what time I called. Finally found https://claimyr.com and used their service to get a callback from the IRS within 45 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what others are saying here - report the full 1099-NEC amount on Schedule C and then deduct the expenses on the same form. They also told me that the management company really should've used a different form for reimbursements, but that it's super common for companies to mess this up.

I need to eat my words from my previous comment. After struggling with the IRS phone system for another week, I broke down and tried Claimyr. Within an hour, I was talking to an actual IRS agent who walked me through handling my 1099-NEC reimbursement situation. The agent confirmed that filing Schedule C and zeroing out the income with expense deductions was the correct approach. She also mentioned that this is a common issue they see every filing season because many organizations don't understand when to use 1099-NEC vs. handling reimbursements differently. Saved me hours of frustration and gave me confidence my return will be correct!

Something nobody's mentioned yet - make absolutely sure you have documentation for EVERY expense that was reimbursed. My brother got audited in a similar situation because the numbers didn't match exactly (he was missing a receipt for like $12.95 or something tiny). The IRS ended up making him pay income tax on the ENTIRE reimbursement amount because he couldn't prove all of it was for legitimate expenses. Keep digital copies of everything for at least 3 years after filing!

If you're using tax software like TurboTax or H&R Block, they usually have a section for "income reported to you incorrectly." You could potentially use that instead of Schedule C depending on your situation. Honestly though, the Schedule C route is probably cleanest since the IRS computer systems will be looking to match that 1099-NEC with something on your return.

One thing I'd add is that you should double-check whether your volunteer work actually constitutes a "business" for Schedule C purposes. Since you were volunteering for a neighborhood watch group and not running a business, you might want to consider reporting this as "Other Income" on Form 1040 and then taking the expenses as miscellaneous deductions. However, given that you received a 1099-NEC (which is specifically for business income), the Schedule C approach mentioned by others is probably the safest route. The IRS matching system will expect to see that 1099-NEC amount reported somewhere on your return, and Schedule C is the most straightforward way to handle it. Just make sure when you fill out Schedule C that you clearly indicate this was volunteer reimbursement work, not a profit-seeking business activity. This can help if there are any questions later about your business activities.

I've been following this thread closely since I'm dealing with a very similar situation with my HOA volunteer work. One additional consideration I haven't seen mentioned yet is timing - make sure you're reporting expenses in the same tax year as the reimbursement. In my case, I had some expenses from late December 2024 that got reimbursed in January 2025, so I needed to be careful about which tax year to claim them in. Since the 1099-NEC will be for 2025 (when you received the reimbursement), all the offsetting expenses should also be reported in 2025 on your Schedule C, even if some purchases were made in late 2024. Also, regarding the business description on Schedule C - I used something like "Community volunteer expense reimbursements" in the business description field. It's clear and factual without making it sound like a profit-seeking venture. Keep your description simple and accurate.