Hello all. This is the first year I have received a 1099 NEC and it does not match the amount that I received as revenue. Is this normal? Am I really expected to pay taxes on money I have not received? And it is not just a few hundred either. I’m very frustrated and worried!!
First question is what is what type of income is being reported. 1099 NEC is for reporting non-employee compensation, such as commission income or working interest income. It is not correct form for reporting easement / right-of-way income or royalty income. Non-employee compensation goes to Sch C, self-employment income, and you will pay FICA taxes which is 15%, in addition to income taxes. Every year I find that some company reports easement income on 1099-NEC and I have to explain that this is surface payment and not a right-of-way agent commission. The proper form is 1099-Misc (line 1 or line 3) or on 1099-S as Proceeds for Real Estate. Royalty income is reported on Line 2 of 1099-Misc separately from easement income. Often we receive two separate 1099-Misc forms, one for royalty and one for easements. Sometimes in same form.
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There wasn’t a lease to be signed since the driller was going through a dispute before they located me. The well reached 100% after payout effective September 1, 2020 and those Unleased Mineral Interest owners in Tract 20 backed in with their ownership after 100% payout. It seems that I am considered a joint owner and they have been providing “bill” (JIB) which are deducted from any revenue. For Example –
|Revenue| $100,000
|Tax| (5,000.00) |Deductions| (7,500.00)| |Netted| (15,550.00)
Total check received $71,950
Does that make sense? On top of this, the payout covers multiple years however they have only issued the 1099 for the tax year of 2022. Not once did they mention a non employee compensation and that is what they have issued the 1099 as. Should I contact the driller to have it reissued as a 1099 MISC instead?
Appreciate your input.
Hi again. Are you able to comment on my response?
As you know, as an unleased mineral owner, you are receiving 100% of the revenues less your share of the well expenses and severance taxes. The income will be reported in the year paid, even if some is for revenues and expenses for prior years. You report the gross revenues and deduct the expenses on your return. As you are essentially a working interest owner, it may be that this is properly reported on 1099-NEC and will go to your Schedule C. It may depend on the state law where the minerals are located. A CPA who understands oil and gas tax law can best advise you.
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- Did you ever sign a lease or any agreements of any kind?
- Was there a lease or production on the property in effect prior to you becoming the owner of the minerals?
- I didn’t sign a lease but I did sign a Division Order.
- I’m not sure I understand the 2nd question… Yes there was production since 2019 but I am not clear of the status of leases because I was not involved with that but i would assume that there is/was a lease somewhere that someone signed…
I am very concerned about the difference between what I have received and what they are reporting to the IRS. It is a $25k difference so either they need to amend the 1099 NEC or send me a check for that $25k in my opinion.
If you are an unleased mineral owner, then there is no lease relating to your minerals. The leases on minerals owned by others does not affect you. As to the 1099-NEC, Line 1 is the Gross Revenues, before deduction of JIB expenses and severance taxes. The operator lists additional information regarding severance taxes and other deductions on either the front or the back of the form. There should be a reference to the state or a breakdown by state if there is more than one state. You should also review the check detail for all your payments to see if you are missing any production months. Is it possible that a check got lost in the mail? Contact your operator and ask about the discrepancy and also ask if there are funds held in suspense or if a check was returned and needs to be reissued…
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OK thanks I do have a letter that they sent that has the break down which equals that “missing amount”.
Am I required to pay FICA???
One more question, if you don’t mind. How would the depletion be applied and at what percentage?
It is my understanding that you will report the Gross Income and the expenses on Sch C of your tax return. You can also take deductions for related costs, such as property taxes, postage, etc. Perhaps even some of your medical insurance costs. Depletion is 15% of gross for federal tax purposes (and may vary by your state tax return). There may be limitations on depletion, under some circumstances. You will owe FICA tax as it will be treated as earned income, again depending on your other earned income. Your CPA who is familiar with Sch C and oil and gas income can give you the best advice and assistance in preparing your tax return.
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This is also my first year receiving royalty payments and my 1099 does not match the amount of money I received. I reviewed my monthly royalty statements and can not figuire the difference from them either. I hate to have to pay taxes on more money than I actually recived.
Hi Judi. The 1099 that was mailed to me showed the deductions from the total amount and that equaled what I actually received. The one on Energy Link just showed the total amount without the deductions. We needed the mailed one to file taxes and then it made sense.
Hope this helps! I know it is a pain! 
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Received our 1099 NEC and I’m trying to figure out where in Turbotax to enter Revenue Taxes, Revenue Deducts, and Revenue netting. That with the Federal Tax they witheld is half of the “income” showing. Ideas??
Use the expertise of a CPA.
Out of about 25 1099’s I get, I always have a couple that don’t add up. Sometimes they don’t give me the production tax deducted, and sometimes they just aren’t quite right. Usually it’s not a big amount and the larger companies usually get it right. I know exactly what I received, and if I got 12 checks from the company and I know I’m not missing a check, I will plug the amount I’m off into production tax and make the amount I’m paying taxes on equal the amount I receive.
If you received 1099-NEC then you have a working interest which is reported on Schedule C as earned income, subject to self-employment tax. You may want a CPA to help you get this right.
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