457(f) distribution reportable on 1099 for a non-employee?

Not for profit hospital has a 457(f) plan where contributions are made for non-employed physicians as compensation for taking call for the hospital.

There is a 3 year vesting period for contributions.

Once contributions vest they become taxable to the participant, whether distributed or not. Hospital issues the participant a 1099-MISC reporting the vested amount (contribution plus applicable earnings) in Box 6 Medical and health care payments.

I find nothing in the 1099 instructions to support this, whereas 457(f) distributions are specifically addressed in the W-2 Instructions for Box 1, bullet point 15. However, W-2 Box 1 compensations is applicable to employees, whereas the physician participants in the call pay plan are not otherwise employees of the Hospital.

Is the reporting of this income on a 1099 appropriate? Or does the 457(f) arrangement by default qualify the participants as employees, and this should be reported on a W-2 instead? Any guidance on this is appreciated.

If it is reported as taxable when vested, it is a short-term deferral.  Report it in Box 7 of the 1099-MISC as payment for services to a non-employee.   If it is not a short-term deferral period and there is a 409A violation, that also is reported in Box 7 of the 1099-MISC as well as Box 15b.  If it is not a short-term deferral and there is no 409A violation, no reporting is required.  See the instructions to Box 15a of the Form 1099-MISC. 

Thanks much. I'm not aware that there is any 409A violation.

11 hours ago, jacoavlu said:

Thanks much. I'm not aware that there is any 409A violation.

These arrangements are rarely subject to 409A because they always get paid when vested.  If they are, and its not reported correctly, you've got a mess on your hands.