Executor Fees

For most people who are administering an estate of a deceased parent or friend that owns only tangible personal property, a residence, investments, and retirement accounts, their compensation should not be subject to self employment taxes. Most executors should receive a Form 1099-MISC reporting their nonemployee compensation. Receiving this form does not mean you automatically have to pay self employment taxes (paying the employer and employee share of Social Security and Medicare on the income received). Revenue Ruling 1958-5 states that “The term ‘net earnings from self-employment’ means the gross income derived by an individual from any trade or business carried on…” In order for compensation from executor fees to be subject to self employment taxes, the following conditions must generally exist:

1. Professional fiduciaries will always be treated as being engaged in the trade or business. This applies if you hold yourself out to the public as a professional in the business of being a fiduciary.

2. Nonprofessional fiduciaries are generally treated as being engaged in the trade or business if all of the following conditions exist:

a. There is a trade or business in the estate,
b. The fiduciary actively participates in the operation of the trade or business,
c. The fees the fiduciary receives are related to the operations of the trade or business.

Remember, though, that compensation from providing services as an executor will still be taxable for federal income tax at the ordinary tax rate (i.e. your marginal tax rate) and are generally reported on Line 21 of Form 1040.