Can part of the Commissions received by an Insurance Agent be considered passive income not subject to SE tax?
August 25, 2008 – 3:49 amMelinda D asked:
I am curious to know if an Insurance Agent, who receives 1099misc Box 7 Income from the company to which they broker for, is all subject to self-employment tax. Certainly a portion of the income received would be for new business and active participation, but the rest of the income would be from residuals for policies written in years past that don’t require much if any effort on the part of the agent. Is there a revenue ruling or other precedence set in allowing a portion of the income to be passive and therefore not subject to Self-Employment taxes?
Sherlock
I am curious to know if an Insurance Agent, who receives 1099misc Box 7 Income from the company to which they broker for, is all subject to self-employment tax. Certainly a portion of the income received would be for new business and active participation, but the rest of the income would be from residuals for policies written in years past that don’t require much if any effort on the part of the agent. Is there a revenue ruling or other precedence set in allowing a portion of the income to be passive and therefore not subject to Self-Employment taxes?
Sherlock
3 Responses to “Can part of the Commissions received by an Insurance Agent be considered passive income not subject to SE tax?”
No. Those are earned income by definition, pure and simple. The textbook definition of earned income includes wages, tips, COMMISSIONS, etc., yadda yadda.
There is no legal basis to consider this as passive income. Passive income includes such things as rents and royalties and is a totaly separate and distinct area of tax law.
Nor is there any legal basis to consider this as unearned income. Unearned income includes dividends, interest, capital gains, etc.
By bostonianinmo on Aug 26, 2008
The IRS has explicitly stated that these commissions are self-employment income. See page 4 of the following publication.
–1998.pdf
There is one exception, that being commissions paid to a survivor of an agent.
By ninasgramma on Aug 28, 2008
No, you are getting the residual commissions because of work you did even if it wasn’t in the current year. It’s subject to SE tax.
By Judy on Aug 28, 2008