Box 3. Other income on 1099 Misc

[IllinoisTaxMan]

The taxpayer brought 1099 Misc on which no 3 other income shows $89,781.00. How do I have to handle this case? He has business expenses unreimbursed. How do I claim expenses? As I know, the amount should have been shown on no. 7 nonemployee compensation. But, the company insist that the classificaton be correct. He is a sales person. I don't understand the this treatment from the company.

Anyone has any idea?

[kcjenkins]

I have no idea why they thought it should be in box 3. But the IRS will never complain about it being included in SE taxable income. And this year the box 3 has a line right below the Amount line that lets you tell it where to send the income. Just select the Sch C and it will go there just like it would if it where in box 7.

And the expenses related to that income should be on the same Sch C.

[TAXBILLY]

This software enhancement will avoid overrides. I like it!

taxbilly

[joanmcq]

You might get a CP2000; but that one is really easy to clear up!

[OldJack]

Sounds like this might be a Statutory employee that will receive a W2 showing payroll taxes withheld (other than federal withholding). If that is the case reimbursement income on the 1099, box 3, would be appropriate to report on form 2106 and thereby claim employee expenses not reimbursed. I expect that was what the employer/payer was trying to tell us so called experts!

[kcjenkins]

Jack, I think you misread the original post. This was income from sales commissions, not reimbursements. The client is not an employee, he's a outside salesman, and his expenses were NOT reimbursed. The question was just about getting the 1099 on his C, since it was not in Box 7. Thankfully, that is no longer a problem as the program now lets us send it wherever we want to send it.

[BulldogTom]

>>>the program now lets us send it wherever we want to send it.<<<

You are lucky it is early in the tax season. Come about April 9-14th, you would get a smart @$$ response about where to send it.

But we are all being polite right now. ;o)

Tom

Lodi, CA

[OldJack]

Jack, I think you misread the original post. This was income from sales commissions, not reimbursements.

The original post said:

>>But, the company insist that the classification be correct. He is a sales person. <<

There was nothing that said what the payments were for in the original post. Why should we assume that it is commissions when the company clearly has reviewed the 1099 and still says it is not box 7, non-employee compensation. If a Statutory Employee (W2 employee) is paid an expense allowance and does not account for the actual expenses I could understand a 1099, box 3, even though it should probably be added to the W2 instead of 1099. Why would we think we can just ignore box 3 treatment and subject it to SE tax without a clearer understanding of the payments?

[IllinoisTaxMan]

The original post said:

>>But, the company insist that the classification be correct. He is a sales person. <<

There was nothing that said what the payments were for in the original post. Why should we assume that it is commissions when the company clearly has reviewed the 1099 and still says it is not box 7, non-employee compensation. If a Statutory Employee (W2 employee) is paid an expense allowance and does not account for the actual expenses I could understand a 1099, box 3, even though it should probably be added to the W2 instead of 1099. Why would we think we can just ignore box 3 treatment and subject it to SE tax without a clearer understanding of the payments?

There was no W-2. He didn't get reimbursed for his expenses such as travel, automobile and phones, etc. I wonder in what occasions the company inputs the amount on 1099 no. 3 other income.

[OldJack]

>>There was no W-2.<<

W2's are not required to be issued as of this message post date. You may still get one. I would think this whole question could be cleared up by simply asking the client what the payments were for.

[Maura]

Why the payments maybe in Box 3:

Termination payments to former self-employed insurance salespeople. These payments are not subject to self-employment tax and are reportable in box 3 (rather than box 7) if all the following apply.

The payments are received from an insurance company because of services performed as an insurance salesperson for the company.

The payments are received after termination of the salesperson's agreement to perform services for the company.

The salesperson did not perform any services for the company after termination and before the end of the year.

The salesperson enters into a covenant not to compete against the company for at least 1 year after the date of termination.

The amount of the payments depends primarily on policies sold by the salesperson or credited to the salesperson's account during the last year of the service agreement or to the extent those policies remain in force for some period after termination, or both.

The amount of the payments does not depend at all on length of service or overall earnings from the company (regardless of whether eligibility for payment depends on length of service).

If the termination payments do not meet all these requirements, report them in box 7.

You might want to inquire further.

[jainen]

>>asking the client what the payments were for<<

Another thing we don't know is WHO sent the 1099. It is not uncommon for "the company" name on a 1099 to be misleading, issued under a parent company or a different legal name.

A salesman/employee of a distributor, expecting to be paid on a W-2 with expenses on Form 2106, might get substantial spifs or incentives from the manufacturer or importer. These are properly reported in Box 3 as they are neither employee compensation nor self-employment.