Thanks for the answer - that's what I thought. Oh well, so much for that deduction.
On the 1099, it's non-employee compensation b/c it was services rendered to the business and she'll need pay SE tax on it. I don't see how it could be misc. income.
The right answer is that the payment should be reported as nonemployee compensation.
However, even if you were to mistakenly report it in box 3 as other income, it is the responsibility of the recipient to know what the income is for and report it accordingly. Put another way, income reported in box 3 is not excluded from self employment taxes just because it was reported in box 3.