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What's the deal with box 3 on IRS Form 1099-MISC?

Income can be earned in different ways, which means it will be reported in different ways at tax time. For instance, miscellaneous income is reported in boxes 1 through 10 on Form 1099-MISC and must be reported to the IRS. However, Boston taxpayers may actually benefit from the information entered into box 3.

This "other income" box often includes payments made to employees as an incentive. For instance, auto manufacturers will make incentive payments to sales people who sell a particular type of vehicle. Other payments that could appear in this box include lawsuit settlements and jury duty income.

These and other types of income are often reported in box 3. In the example involving the auto sales person, because a sales person's employer did not pay the income as a bonus or report it in box 7 of Form 1099-MISC, he or she will more than likely not end up making all of that money part of his or her taxable income. Any time a taxpayer receives income that he or she did not engage in for profit, it will go into box 3.

Since this is a gray area for the IRS, it may not be clear whether a certain type of income should go into this box. Any Boston resident who wonders whether a certain type of income should be reported in box 3 of Form 1099-MISC would be wise to consult with an experienced tax attorney to make sure. Even though it would seem wiser to just let it go through as is, eventually, the IRS may come knocking if it should have been reported as a different type of income. Further, it is not generally the party who reported it incorrectly who will pay the price; the taxpayer often does.

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