According to a recent article  in the Journal of Accountancy, a little-noticed consequence of the proposed regulations on the 20% qualified business income (QBI) deduction introduced by the legislation known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, is that so-called statutory employees may be able to claim the deduction.
One of the requirements of being a qualified trade or business for purposes of claiming the QBI deduction is that the taxpayer must not be in the trade or business of performing services as an employee (Sec. 199A(d)(1)(B)). Prop. Regs. Sec. 1.199A-5(d)(1) further specifies that “income from the trade or business of performing services as an employee refers to all wages … and other income earned in a capacity as an employee, including payments described in [Regs. Sec.] 1.6041-2(a)(1) (other than payments to individuals described in Sec. 3121(d)(3)) and [Regs. Sec.] 1.6041-2(b)(1)” (emphasis added).
Payments described in Regs. Sec. 1.6041-2(a)(1) are generally those required to be reported on Form W-2, Wage and Tax Statement. Payments described in Regs. Sec. 1.6041-2(b)(1) are those distributed or made available to beneficiaries of certain employee trusts or annuity plans.
Individuals described in Sec. 3121(d)(3) are statutory employees. Since payments to them are not included in income from the trade or business of performing services as an employee, it appears that these payments may be includible in QBI and that statutory employees are eligible to claim the deduction if they meet all other requirements. Payments to statutory employees also are not considered W-2 wages for purposes of the W-2 wage limitation on the deduction, which further suggests the payments are QBI (see Prop. Regs. Sec. 1.199A-2(b)(2) and Notice 2018-64, §3).
Read the full article here: https://www.journalofaccountancy.com/issues/2019/jan/qbi-deduction-for-statutory-employees.html .