After serving as an active director of Lee Corp. for twenty years, Ryan was appointed an honorary director with the obligation to attend directors’ meetings with no voting power. Last year, Ryan received an honorary director’s fee of $5,000. This fee is
a. Reportable by Lee as employee compensation subject to social security tax.
b. Reportable by Ryan as self-employment income subject to social security self-employment tax.
c. Taxable as “other income” by Ryan, not subject to any social security tax.
d. Considered to be a gift not subject to social security self-employment or income tax.
Answer:B
Directors’ fees are generally treated as selfemployment income and thus are subject to social security self-employment tax.
Answer (a) is incorrect because directors’ fees are not usually viewed as employee compensation; rather it is treated as self-employment income.
Answers (c) and (d) are incorrect because director’s fees are treated as self-employment income.