How do I rebut the QBI presumption that I'm providing services as an employee?

[jbbergan]

How do I rebut the QBI presumption that I'm providing services as an employee? I am providing contract/independent contractor work a previous employer, but I have contracts, testimony from previous employer, check stubs, e-mails, etc. as evidence. Thanks.

[KrisD15]

The program would trigger that when you indicate you are self-employed by filing Schedule C.

If you were paid with paychecks, and you received a W-2, you are an employee, not an independent contractor, for tax purposes. 

If you WERE an employee, but now work as an independent contractor, you need to file as "Self-Employed". You will report your income from form 1099-NEC (if you earned $600 or more). You can also report the income you received which was not reported on a tax form. Your W-2 income will still be treated as employee wages. 

As a Self-Employed Taxpayer, your profits will be subject to the Qualified Business Income Deduction. You will also be responsible for paying your own Self-Employment taxes, such as FICA (Social Security).   

[jbbergan]

Thanks, but that doesn't really answer my question. If I can prove that I was acting as an independent contractor to a past employer, should I answer No to the question of whether I provided services to a past employer as an independent contractor so that I can take the QBI for this? Even though technically the answer is Yes? There is no follow-up about my ability to prove independent-contractor status. 

[AnnetteB6 · Accepted solution]

Yes, you can answer 'no' to the question about providing services to a past employer if you can provide evidence (if requested) corroborating your status as a non-employee.   Within your tax return, answering the question about whether you are performing services for a previous employer is the only input you will be able to make.  Having the backup documentation to substantiate your claim is important in the event your return is examined by the IRS.  

This is especially important if the services you are providing as an independent contractor are substantially similar to the services you provided as an employee.  The IRS will presume that you are an employee if the services are substantially the same until 3 years have passed from the time you were an employee. 

@jbbergan

[jbbergan]

Fantastic, thank you. I have contracts, testimony from past employer, payments made to my business not my name, e-mails, etc. I will answer no confidently. 

[Cynthiad66]

Services performed as an employee excluded from qualified trades or businesses.

The trade or business of performing services as an employee isn’t a trade or business for purposes of section 199A. Therefore, any amounts reported onForm W-2, box 1, other than amounts reported in box 1 if “Statutory Employee” on Form W-2, box 13, is checked, aren’t QBI. If you were previously an employee of a business and continue to provide substantially the same services to that business after you’re no longer treated as an employee, there is a presumption that you’re providing services as an employee for purposes of section 199A for the 3-year period after ceasing to be an employee.

Services performed as an employee excluded from qualified trades or businesses.

The trade or business of performing services as an employee isn’t a trade or business for purposes of section 199A. Therefore, any amounts reported on Form W-2, box 1, other than amounts reported in box 1 if “Statutory Employee” on Form W-2, box 13, is checked, aren’t QBI. If you were previously an employee of a business and continue to provide substantially the same services to that business after you’re no longer treated as an employee, there is a presumption that you’re providing services as an employee for purposes of section 199A for the 3-year period after ceasing to be an employee. You may rebut this presumption on notice from the IRS by providing records such as contracts or partnership agreements that corroborate your status as a non-employee.

For more information on if you’re an employee or an independent contractor, see Pub. 15-A, Employer’s Supplemental Tax Guide, and Pub. 1779, Independent Contractor or Employee.

Use Form 8995 to figure your qualified business income (QBI) deduction. Individual taxpayers and some trusts and estates may be entitled to a deduction of up to 20% of their net QBI from a trade or business, including income from a pass-through entity, but not from a C corporation, plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. However, your total QBI deduction is limited to 20% of your taxable income, calculated before the QBI deduction, minus net capital gain.