The PSI rules focus on whether income earned by an individual or a personal service entity (like a company or trust) is considered personal services income (PSI). PSI is income mainly earned from personal effort and skills. If over half of the income is from personal effort or skills, it's PSI.
PSI earned by an individual or a personal service entity cannot be divided. It's always taxed directly to the person who earned it. This means the individual pays taxes directly, or the entity pays taxes on their behalf.
When does someone have a personal services business (PSB)? An exception to the PSI rules is if the person or entity earning PSI is running a PSB. A PSB is when the individual or entity meets certain tests set by the tax law. If they pass these tests, they are considered to have a PSB. Otherwise, the PSI rules apply, and income cannot be divided, and only certain deductions can be claimed.
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