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Q&A: Statutory Insurance Agent Wins the 199A Tax Deduction

· Section 199A,Tax Reform 2017

IRS Notice 2018-64 states that monies paid to statutory employees are not wages for Section 199A in spite of the fact that those monies go on the W-2 because they are subject to FICA. This is good news for you as a life insurance agent.

In tax law, the statutory employee is an independent contractor under the common law rules, but is treated as an employee for FICA purposes. In this special category, the life insurance agent statutory employee operates a trade or business.

Statutory income of the life insurance agent on the W-2 produces trade or business net income that qualifies for the Section 199A tax deduction. And because of the new IRS proposed regulations, the life insurance agent is in the “in favor” group for the 199A deduction, meaning that he or she can qualify for the 199A deduction with Schedule C wages and property when taxable income is greater than $415,000 (married, filing jointly) or $207,500 (filing as other than married).

When taxable income is $315,000 or less (married, filing jointly) or $157,500 or less (filing as other than married), both in-favor and out-of-favor business income qualifies for the Section 199A tax deduction based on the lesser of business or taxable income.

Most life insurance agents also receive 1099 income from securities sales, and that income (which you report to the IRS on a separate Schedule C) may be in favor or out of favor for the Section 199A tax deduction. We await IRS guidance.

If you want more information on this, please do not hesitate to reach out to your team at Luster Tax Consulting to work through this with you. Please use the following link to book your complimentary strategy call with your team at Luster Tax Consulting.

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