QBI

[Grumpy Grandpa]

So... I retired and am drawing from my NQ Deferred Comp.  I earned the money that I put in there.  I still have to pay tax and self employment tax on it.  I fill out Sched C for the income.  Does it qualify for the QBI deduction??

[RobertB4444]

No.

Should it?  Probably.  It qualified when you deferred it.  But it is specifically excluded in the revenue code so there isn't a workaround on that.

Here's the IRS code on QBI (it's a lot.)

[Grumpy Grandpa]

ok , yess I'm a grump granda... Ive tried to read almost the entire thing and cant find anything related to NQDC.  can you tell me what section to focus on.  THanks.

[KrisD15]

To clarify,

is this reported on 1099-MISC ? 

Also, is the TurboTax program computing QBI or not? 

[KrisD15]

I believe that the deferred compensation is treated as wages by the IRS in regards to the QBI and therefore your Schedule C income would not be eligible for the QBI deduction. 

You would need to select "No" to it being a "Qualified Business". 

According to the IRS:

"Section 199A(b)(4)(A) provides that the term W-2 wages means with respect to any person for any taxable year of such person, the amounts described in section 6051(a)(3) and (8) paid by such person with respect to employment of employees by such person during the calendar year ending during such taxable year. Thus, the term W-2 wages includes the total amount of wages as defined in section 3401(a) plus the total amount of elective deferrals (within the meaning of section 402(g)(3)), the compensation deferred under section 457, and the amount of designated Roth contributions (as defined in section 402A)."

IRS LINK

[Grumpy Grandpa]

1099-nec

[Grumpy Grandpa]

turbo tax is computing as QBI but this is m first year with NQDC.  I have to use sched C os I listed the business as my former business, there is no category for def comp.

[Grumpy Grandpa]

457 is wages, not clear on deferred comp that I still need to pay self employment taxes on....

[Grumpy Grandpa]

I deferred 1099 income as an independant contractor so that I still pay self employment taxes on the def comp payout.  My income never was wages and I DID qualify for the QBI while working

[Grumpy Grandpa]

I think the more determining issue is that the business no longer exists but i need to file a schedule C to cover the def comp so I list it as the same business....

[Rick19744]

We don't have sufficient facts to respond at this point:

• You indicate you retired. 
  • Were you an employee of the business when working?
  • Did you receive a W-2 when working?
  • Did you file a Schedule C in the past for this business (and received a 1099 for your services)?
• You indicate that the business is no longer in existence.  Please clarify this statement.
• Who is issuing your 1099-NEC?
• TT is indicating you qualify only because sufficient information has not been input at this point
• What line of work did you perform when working?
  • Did you work for a state or local government?

[Grumpy Grandpa]

I have been an independant contractor, CFP, financial advisor.  I worked for one of the big firms for 28 years, never as an employee, always 1099.  I ran my own business with support staff and office rent and all that fun stuff.  I qualified for the QBI since it came out.  The firm, Ameriprise, allowed us to set aside a percentage each year into the NQDC.  I set it to pay out to me over 10 years after I no longer am contracted with the firm.  That started in 2021, hence my questions and not understanding.  Ameriprise issued the 1099-NEC.  I have always paid SE tax on my earnings and I will be paying SE on these distributions as it is income that I have earned, just delayed.  Thanks for your help.  The material from the IRS is not helpful.

The Grump One

[Rick19744 · Accepted solution]

Thanks for the responses.  My final thoughts and comments:

• There was a response related to Section 457.  That clearly doesn't apply.
• You indicate that you qualified before
  • I don't claim to fully understand the "employer-employee" relationship that goes on in these type of organizations. 
  • I'm assuming in the past you also received a 1099 of some sort depending on the year received (since the actual form type changed recently).
• I would just input the amount reported on the 1099-NEC in the same place you reported it in prior years.
• I also assume in past years you indicated that you were a specified service trade or business (SSTB)
• I also agree that had you received this in prior years, it would have qualified within the income limitations of bullet 4.
• However, now you no longer have a trade or business, which obviously is a requirement of Section 199A
• I don't mind gray areas if I believe I can support it, but I don't think I could in this case.  I do have to qualify that statement; I haven't spent significant time researching this.  Having said that, this is a fairly new deduction and not sure how much there is out there on the interplay of QBI and NQDC in your scenario.
• Based on bullet 5, I don't think you qualify. 
• You will need to indicate somewhere in TT that the income does not qualify.  This assumes you take that position.