1099-NEC and QBI

[Dave T]

I think there may have been a thread on this awhile ago but not sure.

T/P has full time job but also does consulting work for former employer. Former employer gives him a 1099-NEC which I know of course in subject to S/E tax but the question is does this go on Sch. C and qualify for QBI ?  

Thanks

[Pacun]

Yes, it goes to schedule C.  QBI depends on the other rules, such as profession and total income for your client.

[TAXMAN]

I think I read on one of the boards or somewhere that if you had a sch C you could get QBI assuming you met the other rules.

[TexTaxToo]

One of the "rules" is that you can't be in "the trade or business of performing services as an employee" which some have taken to mean that you cannot switch from being an employee to being a contractor to take advantage of QBI.  The regs say there is a "presumption that former employees are still employees" for three years, but that it can be "rebutted" - see https://www.law.cornell.edu/cfr/text/26/1.199A-5#d_3

[Lee B]

The argument could be made that since he changed full time jobs the three year presumption shouldn't apply.

The argument could also be made that even though he changed full time jobs, he is still an employee of his former employer.

It really would depend on the specifics of his arrangement with his previous employer.

[Dave T]

Yes, would    agree with the fact that he has now has another full time job. In addition he is beyond the 3 year period and has just maintained the relationship with the former employer in a highly technical field 

Also, in the first few years after leaving he continued to consult and received a w-2. This is the first year of receiving a 1099.

[Lion EA]

If he has always gotten a W-2 from this employer, it does look suspicious to suddenly get a 1099-NEC for 2021 from that same employer for what are probably similar consulting services in that highly technical field.

[Lee B]

35 minutes ago, Lion EA said:

If he has always gotten a W-2 from this employer, it does look suspicious to suddenly get a 1099-NEC for 2021 from that same employer for what are probably similar consulting services in that highly technical field.

The key question will be, "Does he do Consulting work for more than one company and receive a 1099 NECs for that work?"

[Lion EA]

Yes, does he act like he has a consulting business, multiple clients, holding himself out as a consultant, consulting contracts with clients, invoicing them, basically acting like he's in the business of consulting?

[Dave T]

Good points Lion and cbslee, No his only client is his former employer.  

So based on this then,  no QBI but obviously S/E?  And then, if not QBI does the income need to be reported on Sch C or just as other income?

 

[Pacun]

22 hours ago, Pacun said:

Yes, it goes to schedule C.  QBI depends on the other rules, such as profession and total income for your client.

 

[Terry D EA]

On 3/17/2022 at 11:04 AM, TexTaxToo said:

One of the "rules" is that you can't be in "the trade or business of performing services as an employee" which some have taken to mean that you cannot switch from being an employee to being a contractor to take advantage of QBI.  The regs say there is a "presumption that former employees are still employees" for three years, but that it can be "rebutted" - see https://www.law.cornell.edu/cfr/text/26/1.199A-5#d_3

So, this would apply to a statutory employee as well correct? A statutory employee is not a "Trade or Business".

[TexTaxToo]

1 hour ago, Terry D EA said:

So, this would apply to a statutory employee as well correct?

Not necessarily.  See https://www.journalofaccountancy.com/issues/2019/jan/qbi-deduction-for-statutory-employees.html