SECA Tax and the AA3/4 Retired Agent  

If you are a retired State Farm Agent, and retired under the AA3, or AA4 contract, you receive Termination Payments, or Extended Termination Payments.  The question arises whether those payments are subject to Self Employment Contribution Act (SECA) Tax.
They are not.
Specifically the U.S. Tax code provides: 
26 U.S.C.A. ยง 1402, Definitions 
(a) Net earnings from self-employment --The term "net earnings from self-employment" means the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle which are attributable to such trade or business, plus his distributive share (whether or not distributed) of income or loss described in section 702(a)(8) from any trade or business carried on by a partnership of which he is a member; except that in computing such gross income and deductions and such distributive share of partnership ordinary income or loss-

* * *
(k) Codification of treatment of certain termination payments received by former insurance salesmen  --Nothing in subsection (a) shall be construed as including in the net earnings from self-employment of an individual any amount received during the taxable year from an insurance company on account of services performed by such individual as an insurance salesman for such company if--
(1)  such amount is received after termination of such individual's agreement to perform such services for such company,
(2)  such individual performs no services for such company after such termination and before the close of such taxable year,
(3)  such individual enters into a covenant not to compete against such company which applies to at least the 1-year period beginning on the date of such termination, and
(4)  the amount of such payment--
(A)  depends primarily on policies sold by or credited to the account of such individual during the last year of such agreement or the extent to which such policies remain in force for some period after such termination, or both, and
(B)  does not depend to any extent on length of service or overall earnings from services performed for such company (without regard to whether eligibility for payment depends on length of service).
All of the conditions for exemption, set forth above, are met by the State Farm Termination Payment, and Extended Termination payment sections of your AA3 or AA4 Agent's Agreement.  Those Termination and Extended Termination payments are not entitled to treatment as a capital gain.
The SECA Tax Exemption is the result of many hard years of work by NASFA on behalf of all agents.  In the years that this fight with the IRS was going on there were only the AA3/4 contracts and all agents were entitled, after qualification, to Termination Payments.  NASFA, supported and won several lawsuits on the SECA Tax issue.  Then, armed with those victories, NASFA sponsored Federal Legislation to codify the Court recognized exemption.  This process took many years and NASFA poured hundreds of thousands of dollars into the effort.
The codification of the SECA Tax Exemption is one of NASFA's proudest moments.   

Attend the NASFA Town Hall Meeting in Houston Friday, February 24, 2017
  • Network with other agents in your area and from other states
  • Learn more about NASFA, meet the board members, and find out what information is available to you now! 
  • Participate in educational and legal discussions on the state of the independent State Farm Agent! 

The NASFA board of directors and NASFA Legal Counsel, Robert O'Connor will be present to address your questions.

Robert O'Connor has over 40 years of experience representing individuals, groups, corporations, trade associations, and other business entities of all sizes. Here's your chance to meet with other State Farm agents to discuss issues that concern you most, and ask YOUR legal questions directly to Bob himself! 
This event is FREE, and you do not have to be a member of NASFA to attend. All that is required is your RSVP!

Friday, February 24, 2017
Hilton Garden Inn Houston Galleria Area
3201 Sage Rd
Houston, TX 77056
(713) 629-0101
Hotel Accommodations 
Book by no later than February 2, 2017
Room Rate: $159.00/night + tax

Contact the hotel directly by phone to reserve your room, or make your reservation online using this link. If reserving your room by phone, please be sure to identify your affiliation with NASFA Town Hall meeting to receive the rate above 

Tentative Agenda

7:30 - 9:00 a.m. - Breakfast/Check-in

9:00 a.m. - 3:00 p.m. - Program

Topics may include (but not limited to):

  • E&O issues you need to be aware of
  • Current challenges facing the agency
  • The NASFA crystal ball
  • Open Forum for Legal Q&A
  • And MUCH more! A more detailed agenda will be available closer to the event date.

For more information or if you have questions, please email or call Charmaine Barnes, NASFA President or Cassie Poss, NASFA Office.

Charmaine Barnes
NASFA President
Phone: 410-967-3873
Cassie Poss
NASFA Office
Phone: 972-233-9107 x206

14070 Proton Rd, Suite 100 Dallas, TX - 972.233.9107