Commissions received after retirement

[1826453]

I received deferred commissions from the previous year after retirement. The Employer is not paying their share of the Social Security tax (7.5%) on the commissions since they claim I now not an Employee. Is this correct?

[MinhT1]

All payments to employees including commissions are considered like wages and should be subject to FICA taxes.

Although the commissions may be paid after employment has ceased, they were related to the employment itself and the employer should bear their share of FICA taxes. In most instances, the reason they are paid after employment has ceased is that their amount cannot be calculated at the time employment ceased.

[1826453]

I am in full agreement with you. The deferred commissions were paid upon the payment from their Customer. How can I force their hand to pay their share of the tax? Is this a gray area or is there something in the tax code that spells this out clearly?

[DianeW777]

It depends.  Commissions paid after retirement are not considered self employment for insurance agents.  They are taxable income for personal income tax, however not subject to social security or medicare tax. 

• IRS Publication 334  (see page 26)

If you happen to be an insurance agent during employment see the following IRS rules:

• When a former insurance salesperson receives termination payments these payments are not self-employment income if all of the following conditions are met:
  • (1) the amount of payments is not based upon length of service or overall earnings from service performed for the company,
  • (2) you received the payments after your agreement to perform the services with the company ended,
  • (3) you did not perform any services for the company after your service agreement ended and before the end of the year you received the payment,
  • (4) you entered into a covenant not to compete against the company for at least 1-year beginning on the date your service agreement ended, and
  • (5) 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.
    
    It's quite specific about what's NOT self employment income and requires certain conditions that aren't common (e.g., covenant not to compete).  

To report this type of income in TurboTax:

1. Click Federal Taxes -> Wages & Income and scroll down to Less Common Income
2. Go to the last selection, Miscellaneous Income and click Start
3. Go to the last option, Other reportable income and click Start
4. When it asks, "Any other reportable income?" say yes and then type in a description and the amount

[1826453]

Thanks for the response. I am not an Insurance Agent although my situation meets all of the criteria. The Employer filed a 1099NEC with a copy to me. The way an Employer files in this type of situation seems to be discretionary and to their favor. I'm just frustrated and surprised a large Employer would use this to their advantage.