Contact UsFor the past several years my only income has been from insurance renewal commissions which total less than $3000 per year. The Insurance company sends me a 1099 MISC using box 7 "nonemployee compensation." I have not actively worked in insurance since about 2007. On my 1040, I have been filing as self-employed based on these commissions. I file Schedules C and e SE and pay the applicable tax based on these earnings. Am I treating this correctly, or is there another way to treat them?
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Tax Professional Answers
John Stancil
This issue kept coming up so often, the IRS included a section in Publication 334 with instructions on how to treat it. It reads, for a Former Insurance Agent:
"Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met.
1. You received payments after your agreement to perform services for the company ended.
2.You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment.
3. You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended.
4. The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both.
5. The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service).
Also, for an insurance agent, retired. Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ.
So, it would appear to me that you probably qualify under these guidelines. If that is the case, you would simply report the income on line 21 of Form 1040 and not pay any self-employment taxes. I would add that you can file amended returns to get those taxes back for up to three years from the due date of the return, or three years from when it was filed whichever is later.
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510 weeks ago
"Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met.
1. You received payments after your agreement to perform services for the company ended.
2.You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment.
3. You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended.
4. The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both.
5. The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service).
Also, for an insurance agent, retired. Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ.
So, it would appear to me that you probably qualify under these guidelines. If that is the case, you would simply report the income on line 21 of Form 1040 and not pay any self-employment taxes. I would add that you can file amended returns to get those taxes back for up to three years from the due date of the return, or three years from when it was filed whichever is later.