Discussion:Retirement annuity self-employment taxable?
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Discussion Forum Index --> Tax Questions --> Retirement annuity self-employment taxable?
| 12 May 2008 | |
| Taxpayer is employed as a golf pro at a golf course. He is an honorary staff member of a golf supply company. This company contributes to a retirement annuity on the taxpayer's behalf based on a percent of purchases his employer makes with the supply company (Acushnet). This is a non-qualified retirement program that is after-tax and not deductible. Taxpayer does not perform services for Acushnet. The only service he "performed" is being a “Staff Representative” for the apparel and equipment brands sold in his company's golf shop. He receives a 1099 at the end of the year that reports total contributions to the retirement annuity made on his behalf. Acushnet reports this in Box 7 as nonemployee compensation. Is this correct? Or should this be reported in Box 3? Taxpayer never receives payment. All funds are deferred to the retirement annuity. Is this self-employment taxable? | |
RoyDaleOne (talk|edits) said: | 12 May 2008 |
| Yes. | |
| 12 May 2008 | |
| Even if he performs no services? Does IRS see this as a commission? | |
| 12 May 2008 | |
| Could this qualify as a spiff? There are a couple of good discussions here on spiffs - this one has a number of cites: vendor_pymt and here's one with a little different context: box3. | |
Death&Taxes (talk|edits) said: | 12 May 2008 |
| That was my thought also, but in the discussions on spiffs, we are trying to avoid SE tax on the 1099, and would it not be counter-intuitive to then deduct an IRA/SEP etc based on this income? | |
TheTinCook (talk|edits) said: | 12 May 2008 |
| Yeah, I don't believe a spiff counts as earned income. I'm not up on the non-qual retirement rules, so I don't know if that's a problem.
However, from the OP's post, it sounds like there might be too much of an IC relationship to qualify as a spiff. | |
| 12 May 2008 | |
| Very interesting. Because it's a nonqualified annuity, I don't think it is deductible as IRA/SEP based on the income. But it does seem more like an incentive payment. This manufacturer has no control over the taxpayer as in a "performing services" situation. It's a perk if his company (remember he is an employee for a golf course) buys their product and places it for sale in their pro shop. It does not matter if the merchandise ultimately sells or not. Thoughts? | |
| 12 May 2008 | |
| BTW, IRS is trying to assess SE tax on this. I need support for why it is not SE taxable. Thanks for your help. | |
RoyDaleOne (talk|edits) said: | 12 May 2008 |
| I think you are out of luck, it is self employment income. It is an other form of compensation.
1. Fred, do you want cash, or a deferred annuity as a bonus? 2. I could see Fred making an argument that this is really a volume rebate and should reduce cost of sales. Well that will increase the old bottom line subject to SS. No, it is the old employment of capital, and that so much of the profit results from the employment of capital. Good luck. | |
| 12 May 2008 | |
| Fred does not work for the manufacturer. He is an employee of another company. He cannot reduce cost of sales as it is not his business. I see how it can look like another form of compensation, but he does no service for the manufacturer and is not required to. The payment is in exchange only for carrying their product at his place of business. Sorry but that part bothers me. Does it seem a bit gray? | |
RoyDaleOne (talk|edits) said: | 12 May 2008 |
| 1. Fred, do you want a cash rebate, or a deferred annuity as payment for carrying our product?
I think this arrangement is somewhat normal. What is a bit gray? | |
| 13 May 2008 | |
| Roy, are you saying there's no way this can be a spiff, regardless of the circumstances?
Or are you arguing spiffs shouldn't get the treatment they do, as they're really just another form of comp? Because it seems like this is a possible spiff situation (employee of one company gets an incentive payment from a manufacturer unrelated to the employer company), complicated by the unusual relationship (e.g., is "honorary staff member" just a corporate-pompous way of saying this guy's eligible for Acushnet's incentive program, or does it imply a stronger relationship than would be allowed for spiff treatment), and also carrying non-cash payment terms. If I were Bbgregory, I'd want to dig into the actual relationship, and study all those references in the other discussions (Pub 3204, Rev. Rul. 1970-337, etc.), and see if things fit together. | |
| 13 May 2008 | |
| Initially I felt as RoyDale does, subject to SE tax. Then I looked briefly at the spiff threads. Looks like there is some question. If it were my client I would review the spiff data available. | |
| 13 May 2008 | |
| And then looking at it again it looks like a sales commission, subject to SE tax. He gets paid based on what is sold to his employer. Are you keeping track of his basis in the non-qualified plan for accounting when withdrawn? He will have basis will he not? Taxable later only on earnings when withdrawn for retirement. | |
Death&Taxes (talk|edits) said: | 13 May 2008 |
| As I recall, spiffs began with car salesmen and have been expanded to many other such situations, but I think there might be a subtle difference here. Assuming the country club is a non-profit entity that hires a golf pro, who is then able to arrange deals with suppliers to supplement income. It is almost like a payment for shelf placement in a supermarket: let us put the Titleist display where all can see it and we will reward you. I cannot believe the salesman does not come around once in a while. I believe there is a subtle form of service supplied; the pro recommends Titleist, or Pinnacle or whichever ball is front and center.
My view is slightly colored by circumstances many years ago when a large golf supply company deferred payment of a sales person's commissions until he became 70, when he would not lose his Social Security. For five years his income was minimal; then upon reaching 70 suddenly he made over 100K on a 1099. That was the year he used me, and told me what had occurred. | |
RoyDaleOne (talk|edits) said: | 13 May 2008 |
| After rereading the facts please disregard all of my previous comments. My experience colored my reading of the facts, because the golf pro shops I have dealt with are where the pro rented the space for the golf shop. This is not the case with these facts.
Now I see the payment as being bestowed to influence the recipient's conduct. Sometimes called a spiff, kickback, or legal (or maybe illegal) bribe. | |
Death&Taxes (talk|edits) said: | 13 May 2008 |
| Thank you, Roy! Did not realize spiffs had been around since 1859! | |
| 13 May 2008 | |
| After reading all your comments, and mulling it over, I think Roy is right. It isn't a commission on sales, it's a kickback for purchases, almost like a 2% net 10 thing according to the taxpayer. While the salesman may come around, the "kickback" is not determined by anything he sees at the pro shop. It occurs based on purchases, not as a percent of sales or because of a particular shelf placement. Thank you for all your great insights and comments... | |
