The following scenario comes up now and then, especially among self-employed taxpayers who file their own tax returns using tax-preparation software:
A self-employed person who is married files their tax return. The person’s Schedule C accidentally shows the spouse’s name on it.
What’s the Problem?
The name on the Schedule C determines who the self-employment income gets credited to for Social Security purposes.
It may also be used for other purposes. For example, I once helped a client where the wife was self-employed and the husband was on disability.
They did their own tax return in TurboTax. The husband’s name was shown first on the return, so the Schedule C defaulted to being in his name.
Shortly after they filed the return, the husband started getting nastigrams from the government, telling him that they were cutting his disability benefits because he was now gainfully employed (because there was a Schedule C in his name in the government’s system).
Here’s what I did in the situation I talked about above:
I filed an amended tax return showing no changes to any of the numbers from the original return. I then prepared a Schedule C in the wife’s name showing all of the original information that had erroneously been filed under the husband’s name. Then I prepared a Schedule C in the husband’s name showing all zeroes.
In the explanation to the IRS, I told them that the amendment was being filed because the original Schedule C had incorrectly been filed under the husband’s name. I asked them to please update their system to credit all self-employment income to the wife and zero self-employment income to the husband.
That fixed the problem, and the husband stopped receiving the nastigrams.