Do I have to pay tax on advance commissions?
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| It is common, especially in the insurance industry, for agents to receive
advance commissions even though the premiums for the underlying policy haven't been paid by the
policyholder yet. If you receive advance commissions or other amounts for services to be
performed in the future, and you are a cash method taxpayer, you must include these
amounts as taxable income for the tax year received on your tax return. If you repay
advance commissions or
other amounts in the same tax year in which you received them, you reduce the amount you
include on your tax return by the advance commissions repayment. The payer should report your earnings this way.
However, if you repay the
advance commissions or other amounts in a later tax year, you
can deduct the repayment as an itemized tax deduction on your tax return on
Form 1040, Line 28 of Schedule A as a miscellaneous itemized tax
deduction. If the advance commissions repayment exceeds $3,000 it is not subject to the
2% AGI floor. Because the tax law is not clear on whether amounts of $3,000 or less are
subject to the 2% AGI floor if your advance commissions repayment is $3,000 or less you should claim a credit
against your prior tax return by filing Form 1040X
- Amended Tax Return for the prior tax year.
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Related tax
information about advance commissions |
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IRS Form 1040X
Miscellaneous
Itemized Tax Deductions
Income Related Questions and Answers |
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IRS publications
about advance commissions:
For further information about advance commissions see IRS Publication 17, Your
Federal Income Tax. |
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Ask Julian Block your IRS and tax questions! |
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If you can't find the answer to your IRS or tax question in our
web you can call former IRS Special Agent and one of the country's foremost tax attorneys, nationally syndicated columnist ("The Tax
Adviser") Julian Block. Julian is also the tax Editor of Mutual Funds Magazine, America's premier investment magazine. To
call Julian for a tax consultation click
here. |
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