If you receive loss of wages from insurance company when you are a self employed truck driver - is the insurance taxable for self employment social security tax?
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Terminology
An insurance settlement usually refers to an amount paid by an insurance company based on a settlement agreement. A settlement agreement usually refers to a contractual agreement that is based on a negotiated resolution to a lawsuit.
Is this what your client received?
A person who is self-employed cannot possibly have lost wages, because a person who is self-employed does not receive any wages in the first place. Wages are earned by employees. A self-employed person cannot lose something that he never had.
A person who is self-employed may receive a payment from an insurance company for lost income. This type of payment may arise from the settlement of a lawsuit, or from payment of a claim under a disability insurace policy.
Did your client receive a reporting document or an information return reflecting the payment he received?
In other threads, I have often asserted that
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.
And I stand by this statement. If you receive interest income, and the bank mistakenly reports it on a Form 1099-MISC, this does not magically transform the income into self-employment income.
But in most cases, the information return or reporting document accurately reflects the type of income. So the reporting document your client received may help determine what type of income it is, and how it should be reported. You may also need to ask some questions.
It's not a word game. Terms like wages and settlement are terms of art that have formal definitions.
What exactly did your client receive and why?Last edited by Koss; 03-29-2008, 06:09 PM.Burton M. Koss
koss@usakoss.net
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The map is not the territory...
and the instruction book is not the process.
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