It’s tax time again; time again to remember how to treat those manufacturer incentive payments on your Form 1040, U.S. Individual Income Tax Return. IRS Publication 3204 provides a summary of how these payments should be reported.
Incentive payments are bonuses, prizes or other incentive awards (e.g. spiffs and trips) paid directly by the automotive manufacturer or through the dealer to salespersons. These payments are taxable income, but are not subject to federal withholding tax (FIT) or federal insurance contribution act (Social Security Tax - FICA). Moreover, these payments are not considered to be self-employment income and are not subject to self-employment tax.
If you are the recipient of a manufacturer incentive payment, you should receive a Form 1099-MISC with the amount reported in Box 3 “Other Income.” Report this amount as income on page 1 of your Form 1040 on Line 21 “Other Income.” Do not report the income or report expenses related to the income on Schedule C (Form 1040), Profit or Loss from Business Income, because you are not engaged in an individual trade or business and are therefore not self-employed. If you have deductible expenses related to the income, report these as an Itemized Deduction on Schedule A (Form 1040) as a job-related expense subject to the 2% limitation.
For further information, please contact Kathy Petrucci, Shareholder, Tax Advisory Services.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.