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The tax alternative to 'other income'

by on
in Employee Benefits Program,Employment Law,Human Resources

Q I just received an IRS deficiency notice about “other income” in 2005. Looking back, the firm should have listed this amount on the 1099 as “nonemployee compensation,” which is how I reported it on my return. Do I have a problem? K.R., Manahawkin, NJ

A Probably not. We’re assuming you earned fees from this particular firm as an independent contractor. If you properly included the fees as self-employment income on Line 1 of Schedule C, you should not owe any additional taxes or penalties. Explain the situation to the IRS in a response letter and provide documentation to support your position. But make sure you respond to the IRS inquiry within the allotted time period.

Tip: If the IRS requests it, you may have to obtain a revised Form 1099 from the firm that reported the income in the wrong box.

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