1099-Misc income

[Santo Gold]

An individual establishes an S-Corp.  He is the only owner, no employees.  He wants to start a 401k plan for himself. His income for 2018 consisted only of 1099-MISC income, coded as nonemployee compensation (box 7).  It was paid to him and reported on the 1099-MISC but was coded using his SS#, not the S-Corp EIN.

Is this income eligible to be used for 401k plan purposes?

Thanks

[jpod]

Who was the payor?  The S Corp?  If so why was that done (doesn't sound kosher)?  

[ESOP Guy]

i agree with jpod most likely the 1099 isn't valid.  It could be you need to know more about it. 

If the S corp rented a building off of the owner a 1099-misc is correct but not plan comp.  

Ask more questions about what the 1099-misc is all about would seem like the correct first step.  

[CuseFan]

Also, is this income subject to SECA taxes? If not, it's not earned income regardless and not "pensionable".

[Santo Gold]

The individual is in the medical field.  He was paid by a health provider for services provided (not passive income), perhaps more than 1 (separate 1099s).  They paid and reported it as paid to him, the individual.  I think his personal reporting is that it is part of the S-Corp revenue.  But it sounds like the 1099 should have been paid to the S-corp, not him.  Would this mean that it cannot be used as a basis for pension contributions through the S-Corp?

Thank you

[Luke Bailey]

If it is his income personally, because the health provider had a contract with him individually to perform the services as an individual independent contractor, then for 2018 he would appear to be a sole proprietor. If he contracted through the S corp and the health provider just marked the wrong payee, then you might have other results. Anyway, complex and fact intensive. You need to have CPA sort out what was reality, what was not, and document positions taken. I think your instinct, Santo Gold, that the facts need clarification is correct.

[jpod]

If this arrangement will continue I guess he could have a plan that covers both his S corp and himself as a Schedule C independent contractor, so that he can use "pensionable" compensation from both sources.  However, nothing that happened in 2018 is relevant anymore if he had not set up a plan by the end of that year (although I suppose he can do a SEP for 2018 and create a 401(a) plan starting in 2019).   

[Bird]

A few thoughts on this...

first, it's too late to set up a plan for 2018 (!) (oh I see as just noted by jpod).

second, it seems someone told him to set up an S corp but then apparently he didn't know enough to have his clients pay the S corp.  Going forward, that should be fixable by having them pay the S corp.  Also it's not unheard of for the sole prop to pay the S corp just to get all of the income in one place.

As noted, he could have both the S corp and the sole proprietorship sponsor the same plan.  

And yeah the CPA should be involved to help sort this out.  I guess I am just rephrasing other comments...

[jpod]

"Assignment of income" doctrine?

35 minutes ago, Bird said:

Also it's not unheard of for the sole prop to pay the S corp just to get all of the income in one place.

 

[Bird]

2 hours ago, jpod said:

"Assignment of income" doctrine?

I'm not sure exactly what it's called but I do it, with literal transfers of money.  I have a TPA business (corp.) and am a broker.  Back in the day, a former broker-dealer allowed me to assign commission income to my corp. and all was nice and easy.  When I switched B/Ds they said "you can't do that" so they pay me as a sole prop.  I (literally) transfer that income to my corp. as it comes in, and do a 1099-Misc at the end of the year.  

[FPGuy]

He can certainly assign the income to the S-Corp as Bird suggests but

a) Why - what is purpose for S-Corp. vs. reporting income on Sched. C?; and

b) for Plan contribution purposes would need a W-2 from the S-Corp.

Seems to be that for 2018 his best results would be to file a Sched. C and adopt a SEP per jpod's suggestion.