1099 MISC or 1099 NEC reportable income from Travel Agent commissions

[taxesohmy2017]

I have a question I would like to ask. I am an accountant and I am having a difficult time with one of my clients.

I have a client who owns and operates a travel agency. In prior years, she had employees where I did prepare her payroll tax returns, w2 and 1099 MISC/1099NEC.

Well, back in 2019 she decided to stop paying wages and considered them all subcontractors, which I am trying to explain to her the difference between employee and subcontractor.  I am trying to explain her, you can't decide whose an employee or subcontractor.  There are rules that need to be followed to make that determination.

Anyways for 2022, I called her and asked any reportable wages for the 4th Qtr 2022, she replied NO. So I prepared all the usual payroll tax returns.  I also asked, any 1099NEC or 1099 MISC that need to be generated.  Her reply was No.  She said, the girls are taking their commissions and putting them towards future trips.

I explained to her, even though no money was exchange but they did use that money towards a trip would still be considered reportable income for that tax year.  It was would be the value of the trip that needs to be reported on 1099NEC or 1099MISC.

My question is, am I correct, even though they didn't physically receive money but it was applied towards a trip, the value of that trip is still reportable income?  If I am wrong, please let me know.

Also, if I am correct, would I use 1099 NEC or 1099MISC.  Not sure how that type of transaction would be reported on the 1099 form. Would this be considered a SPIFF or would this commission still be responsible for self employment tax as well.

Again, nobody here will be held accountable by answering my question. I am just looking for input here.

Thank you

Lisa

[MinhT1]

As you are already aware of the distinction employee/contractor, I will not address this issue.

Receiving future trips for work performed is called barter income and is taxable for the employee or contractor.

For an employee, it should be reported on a form W-2 and is subject to tax wiithholding and FICA tax. For a contractor, it should be reported on a form 1099-NEC.

Please read this IRS document for more information.

[hd4sho]

based on what you described the person has not made up their mind on following the rules. First IRS Pub 15 & 15A clearly states the employee employer relationship. It appears that they are contractors. They should be given 1099 NEC. The benifits of trip may still be conpesation and should be defined in Pub 15A.

[JohnB5677]

You have an ethical problem, and a professional responsibility.  From the information you've given, these are W-2 employees.  They have executed a barter agreement.  That agreement has financial value that is taxable both as income and employment taxes.  The failure of her to fulfill IRS guidelines will fall on you as her accountant.

@taxesohmy2017

[taxesohmy2017]

Thanks for replying.  I absolutely agree with you and all the other individuals who responded to  my question.  Even though I only prepare her quarterly payroll tax returns, I take my role seriously and professionally.

The barter agreement was the term I was looking for to describe the situation.  First time being in a situation where a barter agreement is being used.  All my other clients have employees who are W2 employees with only wages being paid to them.

I have to constantly explain to them, you can't just decide to categorize if this is individual is an employee or subcontractor because so and so does it, or it feel right.

I have to explain to them, to determine employee vs subcontractor comes down to certain factors and I explain it to them and even provide them the proper IRS publication.

Anyways, I received the answers I was looking for. 

Wish me luck to get my client to cooperate.

Thanks again for your input and thank you to everyone for your input as well.