What Is POS 31 on a 1099-MISC for Direct Sales?

Tax reporting codes help categorize income for individuals and businesses, providing clarity on earnings. Understanding these codes is important for accurate tax filing and compliance with federal regulations. These codes enable the Internal Revenue Service (IRS) to process tax documents and ensure taxpayers report their income.

Defining POS 31

“POS 31” is a specific tax reporting code that signifies direct sales of consumer products for resale. This designation is primarily used within the direct selling industry. The code indicates that the income reported is from the sale of tangible consumer items, not services or other types of goods.

This code is relevant for individuals who operate as independent contractors or direct sellers, purchasing products from a company and then reselling them to end-users. It specifically applies to situations where the products are intended for subsequent resale by the recipient, rather than for their personal consumption. The presence of POS 31 on a tax document signals to both the taxpayer and the IRS the nature of the business activity generating the income. This helps differentiate direct sales income from other forms of non-employee compensation, which might have different reporting requirements or tax treatments.

Where You See POS 31

The code “POS 31” is typically found on Form 1099-MISC, Miscellaneous Information. It appears in Box 7, labeled “Nonemployee compensation,” indicating direct sales of $5,000 or more of consumer products for resale. Companies engaged in direct selling issue this form to independent contractors or direct sellers when they have met or exceeded this sales threshold within a calendar year. This reporting informs both the recipient and the IRS about the gross sales generated through direct selling activities.

Receiving a Form 1099-MISC with POS 31 means the issuing company has reported the direct sales income to the IRS, and the individual is expected to include this income on their tax return. This helps ensure compliance and proper classification of income derived from direct selling operations.

Tax Implications of POS 31

When an individual receives a Form 1099-MISC with POS 31 in Box 7, the reported income is treated as self-employment income. This means the individual is considered an independent contractor or small business owner, rather than an employee, for tax purposes. This income is subject to both income tax and self-employment tax.

Self-employment tax covers contributions to Social Security and Medicare, similar to the FICA taxes withheld from an employee’s wages. For 2024, the self-employment tax rate is 15.3% on net earnings from self-employment up to $168,600, consisting of 12.4% for Social Security and 2.9% for Medicare.

This income is reported on Schedule C, Profit or Loss from Business (Sole Proprietorship), when filing a federal income tax return. On Schedule C, individuals can deduct ordinary and necessary business expenses related to their direct sales activities, such as product costs, marketing expenses, and home office deductions. Subtracting these expenses from the gross sales reported on the 1099-MISC yields the net profit, which is then subject to both income tax and self-employment tax. Individuals with significant self-employment income may be required to pay estimated taxes quarterly to cover their tax liability throughout the year, avoiding potential penalties at tax filing time.