Question: Cliff works as a furniture salesman. Each year, he receives a W-2, Wage and Tax Statement, from his employer. When he sells a certain number of furniture pieces at the store, he also earns an incentive bonus from the manufacturer. The bonus is reported to him on Form 1099-MISC, Miscellaneous Information. Should this Form 1099 income be reported on a Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship), as self-employment income?
Answer: No. These payments are not considered self-employment income and are not subject to self-employment tax. Manufacturer incentive payments are often referred to as sales performance incentive funding formula (SPIFF) payments. Manufacturers make 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. Therefore, Cliff can report the 1099s as other income on Schedule 1 (Form 1040), Additional Income and Adjustments to Income, Line 8z. Any expenses incurred to obtain these payments are no longer deductible under §67(g), as added by the Tax Cuts and Jobs Act of 2017.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.