Self employment tax on interest income??

Question

Hi all,I have lent some money to a friend, who pays me interest on the money.He sends me a 1099-misc form, and files a copy with the IRS.  I declarethat as interest income on line 8a of 1040 and on schedule B. I just gota notice from IRS that I haven't paid self-employment tax  on thisincome (social security tax not withheld). I am not sure if this iscorrect or not. I am not a self-employed person. I have a regular jobfor which I receive W2 form and pay regular employee tax. Is theinterest I receive considered self-employment income? Do I need to paysocial security tax on it?Thanks,RS

Phil Marti · Accepted Answer

Why? Did anyone look at the 1099 instructions to see if this was correct? Hint: it isn't.

It's not. Your inventive friend is reporting this an Nonemployee Compensation in Box 7 of the 1099-MISC. Because of budget cuts IRS fired all their psychics and have to go with what they're told.

No. You need to respond to IRS and tell them about the erroneous 1099-MISC. You also need to suggest to your firend that he knock it off.

Tony Cox · Answer

Sounds like your friend should have filed a 1099-INT instead.Penalties for non-filing are detailed in Section O of the Generalinstructions for form 1099.

Phil Marti · Answer

Unless the payment was in the course of the payor's trade or business a

1099-INT is inappropriate. See the 1099-INT instructions.

See the Schedule A instructions for reporting home mortgage interest paid to an individual.

If this is just A loaning money to B for B's personal use, there's no reporting by the payor.

Self employment tax on interest income??

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