honorarium

[Kea]

Taxpayer is an employee, but his employer also paid him an honorarium for some board work (making speeches and presentations outside his regular job description). Is the honorarium treated as Schedule C income or is it misc income on line 21? If line 21, then the expenses go on Sch A, right?

Thanks

[OldJack]

Employer should have treated it as employee payroll as that was the requirement. Since it was not it should be treated as 1040 Sch-C as it is earned income.

[Maribeth]

If the activity that created the honorarium for your taxpayer was a once-only or limited activity, then i would place the amount on line 21 and not subject it to SE tax. See Rev. Rul 77-356 and Rev. Rul 55-431. If the taxpayer is not engaged in a trade or business, then no SE tax. It's a facts & circumstances test.

My taxpayers have honorariums, for instance, a pharmacist lecturing to a senior club about drug interactions, a second-generation American doing translation work for new immigrants. These honorariums go on line 21 and are not subject to SE tax.

If your client is continuing to do this type of work for his employer, then his job duties have changed and the income should be reflected on the W-2.

hth,

Maribeth

[Kea]

I will add one more wrinkle to the story. The client works in Colombia and has a US green card. I did not include that detail in the original post because I know he must follow the same rules as US citizens. In this case, there is no W-2 / 1099 to issue.

(This is the same person I referred to in an earlier post, but I since learned some corrections. I have been dealing through a translator since my Spanish is not very good.)

In 2006 he worked for a bank and they asked him to also make some speeches to (or for?) the Board of Directors. Since this was not his regular job, the bank categorized it as honoraria rather than salary. On his Colombian tax return, he reported $55K in salary and $45K in honoraria (2 separate lines on return). He then subtracts $12K in expenses related to the speaking fees. The income tax was calculated on this total. The tax treatment was the same, just reported on a separate line.

So, is it reasonable for me to report his honoraria on line 7 or 21? In this case the employer would never have paid into the SSI system anyway, so there is nothing to "replace" through the SE tax. (He does plan to move to the US in a few years, but he will not qualify to collect SSI.)

I am not sure how limited the speeches were. The honoraria was not much less than the salary, but there were also considerable expenses. I will see if I can get an estimate on time spent.

I will try to verify that, in Colombia, salaries and honoraria are subject to the same rules. Just because the income tax return treats them the same, there may be something else behind the scenes.

Thanks so much.

[jainen]

>>a pharmacist lecturing to a senior club about drug interactions, a second-generation American doing translation work for new immigrants<<

It doesn't matter what you call it. The pharmacist's lecture is clearly an integral part of his profession which he practices in a regular and ongoing manner. His compensation must be reported on Schedule C, not Line 21. The translator is probably engaged in a business unless the work is only occasional and irregular.