Discussion:Income Guarantee - FICA Tax
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| Revision as of 07:24, 13 June 2008 RoyDaleOne (Talk | contribs) (I don't see it a) ← Previous diff |
Revision as of 13:39, 13 June 2008 DerekCPA (Talk | contribs) (I see this a lot) Next diff → |
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| Agree with Riley that the amounts are subject to SE tax.}} | Agree with Riley that the amounts are subject to SE tax.}} | ||
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| + | {{ForumReplyPost|UserID=DerekCPA|Date=13 June 2008|Text=I see this a lot in my practice and agree with my esteemed colleagues that it is SE income. As Roy said, I see it as a services payment.}} | ||
Revision as of 13:39, 13 June 2008
Discussion Forum Index --> Advanced Tax Questions --> Income Guarantee - FICA Tax
Discussion Forum Index --> Tax Questions --> Income Guarantee - FICA Tax
| 13 June 2008 | |
| Hello to all, I am new to the forum with regard to this being my first post. I read through the forum every now and again as it proves to be extremely helpful for current tax situations and/or future tax situations that each of us will likely encounter.
I am a CPA that would love to hear your thoughts on the following situation...the scenario is as follows: A physician is recruited by a hospital in which the hospital agrees to an "income guarantee". Basically, the physician has a "line of credit" that he can pull from as he begins his new practice in this area. He has no ties to the hospital in terms of employment, i.e. he does not have to provide any special service to the hospital. This line of credit/guarantee helps pay the physicians personal and business expenses in his attempt to become profitable as a new physician. The physician can access this line of credit as he sees fit (up to a certain amount) for two years. When the two years has ended, the hospital agrees to forgive whatever amount the line of credit has grown to (again, to a certain threshold) over a two year period, i.e. 1/24 of the amount each month. However, in order for the hospital to agree to the forgiveness over the two year period the physician must stay in the "area" and basically work as a physician. Even at this point, the physician has no obligation to the hospital in terms of services provided to the hospital and/or referrals to the hospital. If the physician does move out of state, for instance, he will be required to pay back the outstanding amount with interest. The hospital has issued an amount equal to six months of loan forgiveness for 2007 (filed an extension) on Form 1099, Box 7, Nonemployee Compensation. This begs the question as to the tax implications relative to this loan/income guarantee. Certainly it is income as suggested on the Form 1099, however, is it or should it be subject to the self employment tax, resulting in a Schedule C filing or is it debt forgiveness in which Form 1099C would more accurately reflect the nature of the income? We are dealing with a fairly large sum for the six months in 2007. He will not pay much in terms of the medicare/social security tax as he has not drawn a wage and his business is not profitable. Thanks in advance for any and all responses...it is greatly appreciated. It is tremendous that folks are willing to take time to share thoughts and expertise as we run the gauntlet of income tax reporting and compliance. | |
| 13 June 2008 | |
| Agree that it is COD income. Don't see that this changes the taxation for SE tax purposes (it is all trade or business income). Don't believe that it is necessary to file 1099-C since the hospital is not a lending institution. | |
RoyDaleOne (talk|edits) said: | 13 June 2008 |
| I don't see it as COD income, I see it as a payment in exchange for services. Much, like an advance on commissions that is to be offset by commissions earned. The line of credit is the funding method.
Agree with Riley that the amounts are subject to SE tax. | |
| 13 June 2008 | |
| I see this a lot in my practice and agree with my esteemed colleagues that it is SE income. As Roy said, I see it as a services payment. | |
