Scenario: claiming business expenses

Sep 25, 2014
Q:

Since a W-2 is issued with no Federal or PA Withholding (only FICA and Medicare Tax), is there any preference for:

a) Filing a Schedule C and claiming business expenses?

OR

b) Claiming the expenses on a UE form, as long as the net amount is reported on line 1 of the PA return?

A:

Even though statutory employees receive W-2 forms instead of 1099 forms, the form does not control how the statutory employee’s income is reported for PA PIT purposes.
Most, if not all, statutory employees receive non-employee compensation for their services. Consequently, their income should be reported as compensation and Schedule UE may be used to claim expenses associated with generating the income. If a statutory employee’s activities meet the “commercial enterprise test”, then his income classified as “business income” and his income and expenses can be reported on Schedule C.
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