Automotive Manufacturer's Incentive Program to Vehicle Salesmen

Did you know that incentive payments paid by an automotive manufacturer whether directly to individual salespersons or through a dealer are taxable income?

The good news is that these payments, reported on Form 1099-MISC, Miscellaneous Income, are not treated as wages. Therefore these incentive payments from the manufacturer ar not subject to Federal income tax withholding, social security, Medicare, or Federal unemployment tax. Also, these payments are not considered to be self-employment income and therefore are not subject to self-employment tax.

If you are the recipient of a manufacturers' incentive payment, you need to report the income on a Form 1040, U. S. Individual Income Tax Return, Page 1, under Income (line titled "Other Income"), when you file your income tax return. The expenses that you incur to get the incentive payment may be deductible on Schedule A, Itemized Deductions (Form 1040), under Job Expenses and Most Other Miscellaneous Deductions (line titled "Other Expenses") and are subject to the 2% adjusted gross income limitation.

Please note: this income may not be reported on Schedule C (Form 1040), Profit and Loss from Business, because recipients of these payments are not engaged in an individual trade or business and are therefore not self-employed. Similarly, no expenses may be taken on Schedule C to offset incentive payment income.

If your tax return is prepared by someone other than yourself, make sure that the preparer is aware of the filing guidelines described previously for incentive payments.

For information on taxable income to include bonuses and awards, see Publication 525, Taxable and Nontaxable Income.