SE tax on 1099M box 3?

[GradyFinance]

I am a preparer working for a tax prep business. I am paid a salary plus X dollars per return I prepare. My paycheck comes from payroll. My "commission", "bonus", "spiff", or whatever you want to call it is paid with a check cut directly from the office operations account. At the end of the year I receive a 1099MISC for the amount I was paid per return, reported in box 3, other income.
Since it technically is not "non employee comp" but other income from my actual employer, is it subject to SE tax? or only income tax?

Ive researched it quite a bit but cant find an exact answer. Thanks for any insight you can provide.

Ed

[Gary2]

I think you already know the answer. File an 8919, and look for a more qualified employer. (I'm assuming that "office operations account" simply means a different bookkeeping account with the same employer.

[RitaB]

Technically speaking

Since it technically is not "non employee comp"...

You're right, it is very much employee compensation, and is subject to payroll taxes. But, if you need to keep your job, IRS will get their money by you paying SE tax.

[oceanlovin'ea]

similar to how Block paid

It sounds similar to how Block paid when I worked for them. But we were employees all the way. We got paid an hourly amount during tax season. In May all our returns were tallied up and we got a check for the balance due us over the hourly rate. But we were employees and payroll taxes were deducted from our checks. Part of it wasn't as an employee and part as 1099 misc. You are either one or the other. You can't be both.

If you are working for a tax preparation firm and they tell you what hours to work and what to do and furnish your supplies, you are their employee. You should remind them of this fact and if necessary contact the agency that can help you get this straightened out.

Linda, EA

[Gary2]

It sounds similar to how Block paid when I worked for them. But we were employees all the way. We got paid an hourly amount during tax season. In May all our returns were tallied up and we got a check for the balance due us over the hourly rate. But we were employees and payroll taxes were deducted from our checks. Part of it wasn't as an employee and part as 1099 misc. You are either one or the other. You can't be both.

If you are working for a tax preparation firm and they tell you what hours to work and what to do and furnish your supplies, you are their employee. You should remind them of this fact and if necessary contact the agency that can help you get this straightened out.

They've already conceded he's an employee by reporting on a W-2. Once an employer does that, they can't report other amounts on a 1099-MISC unless they have solid grounds for the amount being unrelated to the services performed for the W-2 (or for similar services provided but not paid on the W-2). And even if they could establish that the work was done as an independent contractor (rare but not impossible, though clearly not applicable here), it would belong in box 7, not box 3.

[Roland Slugg]

And this company you work for is a tax prep company? Heaven help us!

[Gary2]

And this company you work for is a tax prep company? Heaven help us!

There's a reason why I said to file the 8919, without bothering to qualify it with "you'll risk your job". Anyone sharp enough to understand this and honest enough to care to ask shouldn't have trouble getting a tax prep job elsewhere.

[mlinderEA]

Se tax

I agree 100%I pay my preparers so much an hour plus a bonus per return.It is all on W-2 because they are employees.Some years if business is good I will give a special bonus this also is W-2 income.Fill out form look for new job.

[FEDUKE404]

Creative accounting 101

And this company you work for is a tax prep company? Heaven help us!

Well, maybe the owner of the "tax prep business" also owns an auto dealership.

Auto salesmen have historically been paid wages and/or commissions and/or "other." At one time the IRS even had a brochure specific to proper tax treatment of their income.

As others have noted, it is a common practice for tax "employees" to receive compensation based upon hours worked plus some component of pay related to volume of returns prepared. A reasonable person would see it ALL as "employee compensation" and reportable on a Form W2.

From the outside looking in, for this firm I think I might say "adios!" and move on to another more "non-slippery with the tax rules" firm.

FE

[Gary2]

Auto salesmen have historically been paid wages and/or commissions and/or "other." At one time the IRS even had a brochure specific to proper tax treatment of their income.

The IRS still does, Pub. 3204.

My guess about the legal distinction is that the manufacturer incentives are prizes paid to salespeople who work for independently owned dealers, and who provided no labor to the manufacturer. Even though the IRS Pub specifically says auto, I believe it applies in any situation where a sales bonus is paid by the manufacturer of a product to a salesperson employed by an independent wholesaler or retailer.

[JohnH]

I agree about the Pub 3204 - it is tailored to the auto industry but the basic principle applies elsewhere. I've applied that same rationale to tire sales reps, tractor sales reps, and appliance sales reps. The key is that they work for the dealer as an employee but the "SPIFF" is paid directly to the sales rep by the manufacturer. I those cases, the compensation is taxable income on line 21, but not subject to SE tax.

Sounds like this tax prep service may think they can do the same thing. They don't understand the difference between generating paperwork and knowing the facts & circumstances - trying to apply rules they don't understand. What else might they be misinterpreting? For example, Ed, you might want to think about any EIC returns you prepared while working for them.