“What about the referral portion of the 1099 amount.”-->Though you are an employee, as your employer makes a payment to you other than the wages on W2, and the employer does not ask you to account for the expenses, then you employer issues 1099-Misc. Such income is reported on schedule C or C-EZ(Form 1040).This is where IRS wants you to report such income. Just show the income on Schedule C and deduct your other expenses(if you have) associated with the income. You are also liable for Self-Employment taxes on Schedule SE if the profit on Sch SE line $ is $400 or more.I guess you also report it on 1040 line 21, other income. If necessary, you may include a statement showing the required information.
“Also where do i compute the 2% AGI of the work related education credit. 1040 #21 only has place for the other income and doesn't reference a form where this 2% is computed.”----> If your graduate school tuition is deductible and the reimbursements are included in your income as wages, you(as you are not self-employed, you can deduct business expenses only if you itemize your deductions) may take the expense as a miscellaneous itemized deduction on Form 1040, Schedule A line 21, Itemized Deductions, and report the income on 1099MISC line 7 on 1040 line 21. OR you need to file Schedule C and Schedule SE as well. It's likely the 1099-misc income is some sort of reimbursement for an expense incurred by you while working for your employer. You need to find out what the expense, education expense, was and deduct it on the Schedule C. And, on this form you can directly deduct your expenses, education expenses, to earn the 1099-Misc income
For more information, refer to
Publication 970 (2010), Tax Benefits for Education Tax Topics - Topic 513 Educational Expenses