1099 Issue

On a 1099 (I presume 1099-Misc), what's the difference between box 3 and box 7?

A company was sold and the (now apparently former) employees were promised a part of the sale proceeds, to be paid over five years starting in 2017. Payments were made in 2017 and 2018, and the former employer issued 1099's showing the payments in box 7. The accountant for one of the employees is saying it should have been in box 6, which would result in a much lower tax for the employee.

Can someone educate me? I have no idea what's going on here.

Thanks.

Stu

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Reply to
Stuart O. Bronstein
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Box 6 is for Medical and Health Care Payments.

Doesn't sound like the right box to me, but I don't know what the deal was. Was this "part of the sales proceeds" or some sort of medical insurance coverage? Sounds like the former, so box 7 seems correct (Services performed by someone who is not your employee).

Why don't you ask "The accountant for one of the employees" to support his statement?

Reply to
Taxed and Spent

And Box 3 is for "other income payments". (not sure if your slipped a digit between box 3 and box 6).

Would box 7 suggest SE tax is due, and box 3 would not? But wasn't this payout due to the services provided by the ex-employees?

Reply to
Taxed and Spent

At this point I don't know the basis - it seems to me as if it would be in the nature of a bonus.

Reply to
Stuart O. Bronstein

That was exactly my thought.

Reply to
Stuart O. Bronstein

That is my thinking, it's a bonus, and perhaps should have been reported on a W-2.

It often happens in the tech business that a corporation is sold, the employees own stock, but their stock class has a value of zero at the time of sale. In this situation it is common to give some of the proceeds to the employees as a bonus, perhaps proportionate to their original stock positions. This is called a "carve-out". Pretty sure it's a W-2 event.

Steve

Reply to
spope384

Sounds like "the accountant for one of the employees" doesn't know what the deal was, he just wants his client to pay less taxes.

Reply to
Taxed and Spent

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