weird tax question--

[Kev Williams]

2 years ago last November our now son-in-law snapped his spine in half in a work accident-
Fall of 2020, we refi'd our home and pulled enough out to purchase a mobile home, specifically for them-
Workman's Comp had/has been paying him $500 per month toward housing expenses-
He and our granddaughter are buying the home from us on contract, for $500 per month-
Workman's comp has been sending us the payments directly, $1500 every 3 months-
We received a 1099-NEC from workman's comp for the $6000 they paid us in 2021-

The Eye Are Ess will consider this income to us, and it's not, it's actually our SIL's income--

Don't want to get audited if I don't claim it, not sure what to do (haven't got this far in TurboTax yet!)

[Ed Aumiller]

Talk to an accountant... I would consider it a form of renting (rent to own). TurboTax Premier has all forms, etc for rentals.

[Maurice Mcmurry]

I am sorry To read of your Son In Laws misfortune. I am not an expert but have done my own taxes as a self employed person for too long. There are good ways to deal with this. It will take a little hunting. Look at the IRS pages for Care Givers. A long away around could be to file a schedule C for a business of "housing provider". You should be able to deduct interest you paid on the re-finance as well. +1 for consulting an accountant. Or call the IRS, It is tedious. They have talked me through problems in the past.

[Jim Becker]

It sounds like your taxpayer identification number was provided to WC as the landlord given they are sending you the money instead of your SIL. You really do need an experienced tax accountant for this situation...

[Bill Dufour]

I do not see that any money is going to SIL. You are being paid or getting rent or whatever. Is SIL getting any money?
Bill D.

[Jim Becker]

I do not see that any money is going to SIL. You are being paid or getting rent or whatever. Is SIL getting any money?
Bill D.

In the context of the situation, it doesn't matter if the SIL is getting anything since the OP is "physically" getting the money and has his taxpayer ID tagged to those payments. That's true even if he were passing the money on. As long as his number is associated with the WC rent money, he potentially owes tax on the payments. He needs an accountant to help get this straightened out and for advice on how to handle going forward.

[Kev Williams]

Thanks all, seems a call to the IRS is in order

[Dwayne Watt]

Given the timing, filing for an extension is probably the necessary course of action until you can get your question properly answered by a professional.

[George Bokros]

Given the timing, filing for an extension is probably the necessary course of action until you can get your question properly answered by a professional.

When you file an extension you must pay taxes due. The extension is only an extension of time file the return, not an extension of time to pay. If more taxes are due when you file interest and maybe penalty will be charged.

[Ronald Blue]

And once again no good deed goes unpunished. Hopefully you can get it straightened out. Since the SIL get's a "housing allowance" it's not taxable to him. Hopefully your interest expenses etc will offset it for you.

[Kev Williams]

Correct on the 'housing allowance'- and it's not rent I'm collecting, it's a loan payment. I AM obligated to pay tax on the 3.2% interest I make on the loan, but the principal payment isn't/shouldn't be taxable. I had no idea WCF would 1099 us.

(The tax on that extra $6k adds over $1000 to the fed tax and over $400 to the state)

[Clint Baxter]

Seeing’s how it was a 1099-NEC that was issued, they are considering you an independent contractor, being paid for services rendered. If it were a payment for rent, it should have been issued on Form 1099-MISC. When you file a 1099-NEC, you are going to get assessed with Self Employment tax in addition to the increased income tax. A call to WC might be in order as well. Safest plan might be to make an additional payment, if necessary, to both Fed and State so there is enough withholdings to cover whatever the supposed taxes will be. File an extension and the you will then have the time to resolve more of the issue with WC. Good time to also talk the IRS on the situation as well. When that is done, then you can file your tax return. If the resolution comes out in your favor, you will be refunded any excess amount(s) that you’ve paid in.

Good luck

Clint

[Maurice Mcmurry]

Correct on the 'housing allowance'- and it's not rent I'm collecting, it's a loan payment. I AM obligated to pay tax on the 3.2% interest I make on the loan, but the principal payment isn't/shouldn't be taxable. I had no idea WCF would 1099 us.

(The tax on that extra $6k adds over $1000 to the fed tax and over $400 to the state)

Filing a schedule C may be the way to go. If you spent any other money on the "job" it will be a business expense.

Getting unexpected money sure can have a big impact on ones tax bill. I had a fellow send me a big retainer in December 2003 for work he wanted me to do in June 2004, (followed by a 1099 for 2003). I did not cash the check until July 2004 when the work was done. He did the same thing to my Brother who cashed the check right away in 2003. The whole ordeal caused big problems for those two. The client has been black listed by both of us. He still calls, I won't work for him again.