self employment taxes

[Ken]

I have a car salesman client who makes a pretty good wage and he also get about a $15000 bonus with a 1099 form (other income). Does anyone know of a situation where this would NOT be considered self employment income and taxed as such?
He claims other sales
men are saying they are not having to pay as much in taxes as he is. Of course I understand how that goes, people always say that.

[Lion]

Spiff is from the manufacturers and not his employer and is not SE income but line 21. From CCH's Tax Prep Partner:

19,070.30 Sales Incentives From Manufacturers (Spiffs)

In certain industries, manufacturers make incentive payments directly to the salespersons of companies that sell their products to consumers (these incentive payments are commonly known as Spiffs). Manufacturers make these Spiff payments to encourage salespersons to influence customers to purchase their products. Under this practice, salespersons are essentially receiving incentive payments from third parties that are not their employers.

PRACTICE TIP

This practice is common in industries such as the automotive industry, the home appliance industry, and the cell phone industry. The manufacturer generally is required to report such payments to salespersons on Form 1099-MISC.

A taxpayer who receives Spiff payments should report the payments as other income on Line 21 of Form 1040. The taxpayer may be able to deduct the expenses incurred in earning the incentive payments as miscellaneous itemized deductions not subject to the 2-percent adjusted gross income limitation ( IRS Pub. 3204, Automotive Manufacturers' Incentive Program to Vehicle Salespersons). See 41,000 for a general discussion of such deductions.

Spiff payments are not treated as wages, are not subject to employment tax withholding, are not considered self-employment income, and are not subject to the self-employment tax ( IRS Pub. 3204). See 51,000 for a discussion of the self-employment tax issues related to spiffs.

COMPLIANCE TIP

Spiff payments should not be reported on Schedule C (Form 1040), Profit and Loss From Business, because the taxpayers receiving these payments are not considered to be engaged in a trade or business.

[Burke]

I have a client who sells cell phone plans (for one provider) but this is his only source of income and he does this at a location they provide. I do not think this is "bonus" income. Why wouldn't it be self-employment? I was always aware of SPIFFS for auto salespeople, but that was usually separate and in addition to their salary.

[Roland Slugg]

Hopefully the income is reported in box 3 of your client's 1099-MISC form, where it belongs, and not in box 7 where it doesn't.

The taxpayer may be able to deduct the expenses incurred in earning the incentive payments as miscellaneous itemized deductions not subject to the 2-percent adjusted gross income limitation.

That portion of Lion's post is incorrect. Expenses paid in connection with earning SPIF income are deductible on line 23 of Schedule A and are subject to the 2% n/d floor.

IRS Pub 3204 is a good little summary of SPIF income taxation.

[Lion]

Good catch, Roland. I just cut & paste from the CCH pub which cites IRS Pub 3204. But, 3204 states ARE while the CCH tax prep states are NOT. I'm going to drop CCH an email !!