1099-Misc requirements

[Cat in OH]

I just want to be sure I'm right on this:

84 yr. old widow has a 60 yr. old special needs son still at home. Son attends a sheltered workshop Mon-Fri year round. They are also eligible for respite care through a state program. The money for the care is paid to the workshop by the state. The workshop then issues a check to the mother each time care is given (usually 2 or 3 days at a time). The mother never cashes the check, but endorses it over to a caregiver. The mother received a 1099-Misc for $5600 non-employee compensation, the amount paid for the respite care, most of it to one person.

My understanding is that the mother is not required to issue a 1099 to the caregiver because she was not paying the caregiver as a cost of any kind of business. Am I correct?

Also, in 2008, the 1099 was for $2700 so the taxpayer put it on a C-EZ with an offsetting total of $2700 in expenses. Because it is more than $5000, that would mean filing a regular schedule C, but again, putting the expense as a single amount. Is this the best way to handle this? This is a new client and I want to be sure not to cause her any problems.

Thanks,

Cathy

[Pacun]

You should issue a 1099misc to the care giver.

[Cat in OH]

You should issue a 1099misc to the care giver.

Am I misunderstanding the 1099-Misc instructions?

"Trade or business reporting only. Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable."

The taxpayer has no business of any kind.

Thanks.

[Lion EA]

Well, if she has Schedule C income from care giving and pays a care giver and takes a deduction for that expense on her Schedule C, then her Schedule C trade or business should issue a Form 1099-MISC.

[Cat in OH]

Well, if she has Schedule C income from care giving and pays a care giver and takes a deduction for that expense on her Schedule C, then her Schedule C trade or business should issue a Form 1099-MISC.

I'm not sure the Sched C is actually correct. I think the only reason they used it last year was that they didn't know what else to do with it. I'm not even sure that the 1099 is correct...I would think it should have been "Other Income", not "Non-employee compensation". They were not being compensated for anything they did for the workshop.

[Janitor Bob]

You could just report the 1099-misc income as usual (flowing directly to 1040 as other income) and report a off-setting negative amount as "other income"...with an explanation of what it is.