Where do I input 1099 income for bonuses on tax return?

Thanks for the quick response! I just double-checked and yes, they are 1099-NECs. I'm a little confused though - if she's an employee at the daycare (gets a regular W-2), why would they give her 1099s for the bonuses instead of just including that money in her regular paycheck? This seems weird to me. Also, what expenses can she deduct on Schedule C if these are just bonuses and not really from running a business?

The daycare is incorrectly classifying these payments. Bonuses to employees should be included on the W-2 along with regular wages. When an employer issues a 1099-NEC to an existing employee, they're essentially treating that person as both an employee and independent contractor, which is generally improper. For Schedule C deductions, since these aren't true business expenses but misclassified bonuses, there likely aren't legitimate business expenses to deduct. However, this misclassification also means she's responsible for both the employer and employee portions of Social Security and Medicare taxes (15.3% total). Your stepdaughter should consider contacting the daycare to request corrected forms, as this classification error costs her additional taxes.

Did the site actually help your employer fix their mistake? Or did you just end up paying the extra self-employment taxes anyway? My husband's company does this too and we've been getting killed on taxes.

How much does taxr.ai cost? Their website doesn't seem to show pricing unless you create an account. Is it worth it for just dealing with a couple of 1099s?

The site absolutely helped get things fixed! I showed my boss the letter it helped me draft explaining the tax implications, and they had their payroll company issue a corrected W-2 including my bonus amounts. They honestly didn't realize they were causing me to pay extra taxes. The pricing is really reasonable for what you get. I don't remember the exact amount, but it was way less than what I would have paid in additional self-employment taxes. And it's not just form analysis - they give you specific action steps for your situation and explain everything in plain English.

Wait, is this actually legit? I've spent cumulative days of my life on hold with the IRS and basically given up on ever speaking to a human there. How exactly does this service work?

Sounds like a scam to me. Why would anyone pay a third party to wait on hold? And even if you get through to the IRS, they'll probably just tell you to follow the forms you received and file accordingly. I've never had the IRS help resolve disputes with employers.

It works exactly like it sounds - they have a system that waits on hold for you. When an IRS agent picks up, they call your phone and connect you immediately. No more wasting hours listening to the same hold music and messages. The IRS actually was super helpful once I got through to them. The agent explained that employers can't just arbitrarily decide to pay regular employees via 1099 for convenience. They walked me through filing Form 8919 "Uncollected Social Security and Medicare Tax on Wages" which lets you report the income correctly without paying the extra self-employment taxes. They even gave me specific language to use when talking to my employer.

Would option 2 trigger an audit or get her employer in trouble? She likes her job and doesn't want to cause problems, just wants to file correctly.

Filing Form 8919 with code H generally won't trigger an audit for your stepdaughter - it's a fairly common form used specifically for these situations. The form itself doesn't automatically lead to employer penalties. However, it does potentially flag the employer's practices to the IRS. This doesn't mean they'll immediately get audited, but if many employees file this form, it could eventually lead to questions for the employer. That said, your stepdaughter's primary concern should be filing her taxes correctly, not protecting her employer from their own incorrect practices. The employer is already putting her at a financial disadvantage by making her pay extra taxes.

I used TurboTax last year for exactly this situation. It can definitely handle it, but you need to be careful about how you enter it. Don't just enter the 1099-NEC in the "self-employment income" section automatically or you'll end up paying too much tax. Instead, when you get to the income section, look for the option about "Form 8919" or something like "I received a 1099 but should have received a W-2" (wording might vary slightly). TurboTax will then guide you through filing with Form 8919 which is much better than filing Schedule C for misclassified wages.