The military pays a bonus to retirees for helping recruit new soldiers. If the referral actually enlists they give a $2000 referral fee. First I have had one, but they issued a 1099-Misc with the $2000 in box 7. Has anyone else seen one of these and do I put this on a Sch C as business income? Seems more like other income but that would be box 3 of the 1099 Misc and they reported it in box 7 as nonemployee compensation.
Announcement
Collapse
No announcement yet.
Bonus for Referral Army Recruit
Collapse
X
-
Referral Compensation
I think that's a judgment call between you and the client. I agree that it probably is not self-employment income.
The question is whether the taxpayer is in the business of recruiting. The fact that he's not a salaried employee of the Department of Defense doesn't mean anything. If he was recruiting a couple dozen guys a year, and getting $2000 for each one, then I think it would be considered a trade or business, and it would be subject to self-employment tax.
The same kind of question arises with respect to fees paid to an individual who gives a speech. For example, an active or retired state senator might get a $500 fee for giving an address at the commencement exercises of a small two-year or four-year college. If he does that sort of thing once or twice a year, I don't think it's a trade or business, and it's not self-employment income.
At the other end of the spectrum are former US presidents and some highly paid "motivational speakers." These folks can command upwards of $10,000 for a single appearance. At some point it becomes a business activity, especially if it is a substantial portion of the guy's income...
The instructions on the back of Form 1099-MISC advise the recipient to report income in Box 7 on Schedule C if it is self-employment income, and to report it on Line 21 of Form 1040 if it is not self-employment income. The IRS is aware that sometimes income in Box 7 is not subject to self-employment tax.
It is not the reporting document that determines the taxation of an item; rather, it is the nature and character of the income that determines its treatment under the tax law.
BMKLast edited by Koss; 02-10-2010, 10:14 PM.Burton M. Koss
koss@usakoss.net
____________________________________
The map is not the territory...
and the instruction book is not the process.
Disclaimer
Collapse
This message board allows participants to freely exchange ideas and opinions on areas concerning taxes. The comments posted are the opinions of participants and not that of Tax Materials, Inc. We make no claim as to the accuracy of the information and will not be held liable for any damages caused by using such information. Tax Materials, Inc. reserves the right to delete or modify inappropriate postings.
Comment