TIP OF THE DAY- FANNIE UPDATED GUIDELINES FOR COMMISSION INCOME
TIP OF THE DAY- FANNIE UPDATED GUIDELINES FOR COMMISSION EMPLOYEES
Commission Income and Unreimbursed Business Expenses
We are removing the different treatment of commission income based on the percentage of employment income. Going forward all commission income will be treated the same, and individual tax returns (or tax transcripts) will no longer be required. We are updating our policy regarding commission income and unreimbursed business expenses due to recent changes made by the IRS that are effective with the reporting of 2018 federal income taxes.
Currently, unreimbursed employee expenses are reported as a deduction on the borrower’s individual federal income tax return (IRS Form 2106, or IRS Form 1040, Schedule A or C). These expenses are used when calculating an automobile allowance and commission income when it is 25% or more of employment income.
As a result of the tax law changes that will prevent lenders from being able to identify unreimbursed business expenses, we are removing the requirements for IRS Form 2106, and changing the automobile allowance policy. The full amount of an automobile allowance may now be included as income and the lease or financing expenditure must be included as a debt in the calculation of the debt-to-income (DTI) ratio. (Note that a history of receipt of this income continues to be required.)