Paying taxes on money I haven’t received?

Accounting and Taxes
1

Hello,

In 2022 and 2023 I received a 1099 NEC and a 1099 MISC from Continental Resources… both years claiming I have made X amount of dollars even though I only got paid roughly half of what they are stating. Is anyone else having this issue? Uncle Sam just sucker punched me and I don’t understand why I have to pay taxes on money I never even saw in the first place.

3

You should work with a CPA well versed in oil and gas taxes to make sure that your returns are amended to correctly reflect your income. The operator must report the gross revenues for your interest. Most add a line on the front or back of the form detailing the costs, severance taxes, state income tax withholding, etc which would get to your net check. But that is also your responsibility. Are you keeping a monthly spreadsheet detailing the gross revenues, expenses and severance taxes which are deductible on your tax return (Sch E or Sch D). Keep in mind that any state income tax withheld is not deductible on Sch E or Sch C, but must go to your individual Schedule A. If your wells are in OK or NM, then you will have state income tax withheld and should be filing a state tax return to get refund of excess withholding. Notes: First, if you are getting a 1099-NEC, then that is Non-Employee Compensation, most likely from a working interest share. Royalty income, lease bonus and payments for easements go on 1099-MISC. If it was incorrectly reported on 1099-NEC then you must get Continental to amend and report on 1099-MISC. 1099-NEC income goes to Schedule C as earned income. Second, on Sch C, the net working interest income, after deduction of expenses and severance taxes and JIB payments, is not only taxed at your income tax rate, but is also subject to an additional 15.3% Self-Employment Tax. (Social security and Medicare taxes). Third, the income on 1099-MISC generally goes to Sch E, except for interest income going to Sch B, and is not subject to Self-Employment Tax. For this reason, you need to keep separate spreadsheets for working interest income vs royalty income

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