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Client who only sells life insurance received a W-2, has…

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Client who only sells...

Client who only sells life insurance received a W-2, has income tax withholdings in box 2 and box 13 statutory employee is not checked. Can we still file the income and expenses under Schedule C

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Submitted: 10 months ago.Category: Tax
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10/12/2017
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 10 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,894
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

HI, MY NAME’S LANE - I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice 1986.

...

So sorry, but (as I'm guessing you know) this all turns on whether that box is checked. IRS will kick back (eventually) the schedule C unless the employee is, in deed, a statutory employee.

...

If this person does, indeed, fall under the IRS definition "A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company." you can always ask for a corrected W-2 (there's also a process for filing a complaint with IRS - called a W-2 complaint - if the company refuses to correct.

...

Call the IRS toll free at(###) ###-####or visit an IRS Taxpayer Assistance Center (TAC). All TACs operate by appointment only.

  • The IRS will send your employer a letter requesting that they furnish you a corrected Form W-2 within ten days. The letter advises your employer of their responsibilities to provide a correct Form W-2 and of the penalties for failure to do so.
  • The IRS will send you a letter with instructions and Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. You can use the Form 4852 in the event that your employer doesn't provide you with the corrected Form W-2 in time to file your tax return.

...

But if you simply file the schedule C with a w-2 not checked as statutory employee, there WILL be a question from IRS within three years.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 10 months ago

The other alternative is to use form 2106 (unreimbursed employee expenses), but, as I'm guessing you know, you have the 2% floor issue. But again, sending in the schedule C with a w-2 and no statutory employee box checked, will cause a flag before a warm body is ever involved.

...

Please let me know if you have ANY questions at all

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating, using the stars on your screen, and then clicking “submit" – That’s the only way I’ll be credited for the work.

The stars are located at the top of the page, but if you are on a mobile device (like a tablet or a phone), you may have to scroll left or right to see them and click on them to leave a positive rating. Thank you!

...

But if you need more on this, please let me know.

Lane

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