Some sales employees receive bonuses from the manufacturers in addition to their pay on W-2.
This is typical of car salesman whose pay is based on their sales and the dealer issues a W-2. But Ford, Toyota, etc may give a bonus and issue a 1099. I know this is not a prize and cannot go on 1040- line 21 and the person must pay self-employment tax. But they are really not self-employed. Is there a way to handle this other than doing a schedule C?
Stop.
An employee who gets a check directly from the manufacturer DOES put the money on line 21 of the tax return. See IRS pub 525. Look it up under "manufacturer incentive"--the IRS even has posters for break rooms to remind employees that it is NOT schedule C income.
http://www.irs.gov/pub/irs-pdf/p3204.pdf
A self-employed person (or the owner) treats it as SE income.
The problem is that many companies report the income in Box 7 which "automatically" subjects it to Self-employment tax especially when the IRS computer system matches the 1099-Misc to the taxpayer's return.
A statement should be attached to the return stating that it's Not subject to SE tax! Report Abuse
I'm guessing that you mean a Form 1099-MISC. The box used would be "Non-Employee Compensation" Does that help you?
If a company pays a bonus to an employee, the amount is included on the Form W-2. If a company pays anything to a non-employee, it doesn't use a W-2. Rent goes on Form 1099-MISC, prizes also go there. The same for earned income to somebody who isn't an employee. A preliminary Form 1099-MISC is available at the irs.gov web site http://www.irs.gov/pub/irs-pdf/f1099msc.… Look at the different boxes to see how many types of income are reported on the same form.
Income reported on Form 1099-MISC, box 7 may be reported on Line 21 or included with similar income on Schedule C. You may not think a person is self-employed, but, in your example, a car salesman is employed by a dealer to sell cars. If the salesman does something during the course of employment that earns income from the manufacturer or any other company related to his employment, then the income is business income and therefore subject to self-employment tax. The relationship of the salesman to the other company is that of an independent contractor.
I hope this helps.
Gary
Sales Spiffs (like you are talking about) do go on line 21 and are NOT subject to SE tax. So if you have been doing this, you need to go back and amend past returns.
Helen, EA in PA