Are sales commissions qualified business income?

[dbn17]

My wife works in loan origination for a company that makes loans to commercial buildings. When certain sales targets are hit, she receives a bonus. This is reported on a 1099-MISC line 7. Does this count as Qualified Business Income? TT asks "Was any of your loan origination work for a former employer?" and I'm not sure how to respond.

[DanielV01 · Accepted solution]

It is not QBI.  You will need to answer yes to that question, and the income will be treated as wages which are not eligible for QBI.  (Since she worked for the company as an employee, she may file Form 8919 to mitigate self-employment tax in this situation).  

TurboTax asks this question because the IRS put in a provision to prevent companies from using loopholes to include additional income that should be bonus wages (and therefore compensation not eligible for QBI) as income that could be included for the QBI deduction.  The loan origination company may have had this practice for years (not necessarily looking for this lopphole), but, regardless, the pay on the 1099-MISC cannot be used to claim QBI.

[dbn17]

To clarify, my wife is not (and has never been) an employee of and does not receive wages from the company that pays the sales commission. The company she is an employee of and receives wages from is the majority shareholder in the company that pays the commission and receives management fees from that company.

[DanielV01]

If the bonus is not coming from her company, it can count for QBI if it is treated as self-employment.  What I described above is to prevent the loophole, but the "loophole" doesn't exist if the contractor income comes from a different source than her employer.  Hope that helps.