1099 commission and SE tax

[Possi]

My client works in an interior design shop. She is paid on a W2 for working there.

 

She also has 2 forms 1099misc for commissions paid from the store and from another consignee in the store.

 

The 1099 income was put in Box 7, usually subj to SE tax.

 

I do not believe it should be subj to SE tax. I think it should have been reported in Box 3. The 1099 will not be corrected to box 3. I know that doesn't lock me out of reporting it as ordinary income, but I would love to get some reassurance. What do you think?

 

 

[Jack from Ohio]

The commissions are received a part of doing her job there.  It is correctly reported in box 7 and should be subject to SE.

[jasdlm]

Agree with Jack.

[Pacun]

W-2 or 1099misc on line 7. In event it is subject to SE taxes. (I agree with Jack).

[Lee B]

My client works in an interior design shop. She is paid on a W2 for working there.

 

She also has 2 forms 1099misc for commissions paid from the store and from another consignee in the store.

 

The 1099 income was put in Box 7, usually subj to SE tax.

 

I do not believe it should be subj to SE tax. I think it should have been reported in Box 3. The 1099 will not be corrected to box 3. I know that doesn't lock me out of reporting it as ordinary income, but I would love to get some reassurance. What do you think?

 

The commissons from the store should have been on her W 2. Her employer is trying to avoid the employment taxes.

[Jack from Ohio]

The commissons from the store should have been on her W 2. Her employer is trying to avoid the employment taxes.

Agree.  The client should complain loud and long to their employer.

[Possi]

Thanks for your responses. The store is claiming that the commission is being paid under a different entity. I know the second 1099 is a different entity.

 

I fully agree that both entities are avoiding employment taxes, especially the store!

 

Oh well, SE tax, here we come!

[JohnH]

_{The employee could complain, and they might get some results.}

_.

_{Depending upon the total amount of additional tax involved (which is really only 7%). it may or may not be what they had in mind.}

 

_{They should weigh the potential results against how much they like working there.} 

 

_{One result of saving that extra 7% of whatever the amount is on the 1099's could cost  them their job.}

Edited February 25, 2015 by JohnH

[kcjenkins]

It is not really 'costing' the client anything that would not have been deducted had it been on the w-2.  I see no problem.

[Jack from Ohio]

It is not really 'costing' the client anything that would not have been deducted had it been on the w-2.  I see no problem.

Only costs the client the 7.65% SS & Medicare that would have been the employer's responsibility. 

[Abby Normal]

She could file a 8919 Code H for the one 1099 from the same employer. Is the EIN the same on the two forms?

[Don in Upstate NY]

The only exception I would note is that if she received a commission from a manufacturer of the product she sold,  even if she sold it in her normal course of business, the manufacture's extra bonus, reported on a 1099-MISC,  would NOT be subject to SE tax.  See Pub 3204.

[JohnH]

I usually use 7% as guesstimate of the actual extra cost, because half of the S/E tax is an adjustment to income. 

So depending upon the client's tax rate, the true after-tax cost of the S/E tax is something less that 7.65%. 

 

If I were inclined to suggest the 8919, I'd be sure to ask the client how they would feel if they lost their job over this.

Some people wouldn't care, while for others it might be devastating.

They need to know the risks, no matter how small.

[Max W]

The only exception I would note is that if she received a commission from a manufacturer of the product she sold,  even if she sold it in her normal course of business, the manufacture's extra bonus, reported on a 1099-MISC,  would NOT be subject to SE tax.  See Pub 3204.

This is common in new auto sales.  It is called a spiff  (SPIF-Sales Performance Incentive Fund).  But it wouldn't apply to the store commission. It might apply to the consigner's commission, but more details are needed here. 

[Pacun]

7% is not bad. Keep in mind that a couple of dollars here and there as expenses on that 1099, will help reduce that 7% or 7.65%.