I am an employed physician and my salary is reported on a W2. However, last year I was required to make depositions in two separate medicolegal lawsuits. I wasn’t being sued, but I knew the patients, and about their care (I was not an expert witness). The two law firms compensated me for their time, and I received two 1099-Misc forms. On one form my compensation is under Box 7 (nonemployee compensation) and on another it is reported in Box 3 (other income). I’m not sure why different boxes were used: The only thing I can think of is that I was called by the defense for the Box 3 income, and by the plaintiff for the Box 7 income; but both were depositions in a medicolegal cases.

I’m using TaxAct and it seems that since I have Box 7 income, I need to file Schedule C (although I don’t really have a “business”).

For the Box 3 income, TaxAct gives me the choice of either reporting it on the 1040 or on Schedule C. Since both payments were for depositions, to be consistent, I think I should report the Box 3 income on Schedule C as well. Any thoughts?

Thanks!

asked 14 Apr '11, 18:27

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MDF
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edited 15 Apr '11, 03:18

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Rick 1
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I want to believe that the Box 7 1099 was issued incorrectly. However, it depends on a variety of things. I believe that you were not self employed and that the income should NOT go on Schedule C. It is very likely that the issuer didn't know any better.

If I were doing your return I would report the income correctly. Problem here is that I CANNOT tell you how to do that here in detail. Basically you need to wash the 1099 through the return and report the income correctly.

I would suggest that you consider the amount of money involved too - as a physician you may already be over the OASDI threshhold. If so the only extra tax you'd pay on Box 7 income is the 2.9% Medicare tax - it is taxable for income tax either way. So if they paid you $5K and you put it on Schedule C you'll pay an extra $145 in Medicare tax. This may not be worth your time and effort to fix. On the other hand, if they paid you $10K to testify AND you are NOT over the OASDI limit it could cost you $1,500 - in that case it would behoove you to see a licensed/credentialed tax pro and have your returns done by a professional.

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answered 14 Apr '11, 18:35

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EAgent
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Thanks much for the response. The IRS instructions for the 1099-Misc do state that box 7 income (subject to SE tax) includes "Payments by attorneys to witnesses or experts in legal adjudication." http://www.irs.gov/instructions/i1099msc/ar02.html#d0e914

And if I do have to pay SE tax, I think Schedule C would be the way to do it.

You are correct that I'm over the OASDI threshold. Also the payments were quite small so it would amount to about $45 in Medicare tax. So I'm thinking the prudent thing to do would be just pay the tax.

Thanks again-all feedback is much appreciated.

(14 Apr '11, 19:06) MDF
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Asked: 14 Apr '11, 18:27

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Last updated: 22 Jul '11, 08:22