Self-Employment Tax Reaches Retirement Income

Mary_Kay_Pink_CadillacThe Internal Revenue Code taxes “self-employment income.” I.R.C. § 1401(a), (b). The tax “is the counterpart of the taxes imposed on wages of employees by the Federal Insurance Contributions Act.” Steffens v. Comm’r, 707 F.2d 478, 481 (11th Cir. 1983) (citations omitted). Recently, the 11th Circuit addressed an unusual issue: whether distributions from retirement plans maintained by Mary Kay, Inc. for its independent contractors are subject to self-employment tax. Peterson v. Comm’r, Nos. 14-15773; 14-15774; 2016 U.S. App. LEXIS 12574 (11th Cir. July 8, 2016).

The Taxpayer, Christine Peterson, was a Mary Kay sales consultant who started to work for the company in the summer of 1982 and earned a pink Cadillac by the following year.… Read More