W-2 and 1099-MISC....How can this be???!!!

[taxpronewbie]

I have a client who is a Real Estate Consultant...i was preparing his return (Sch E, Sch SE, Sch C, etc..) when inputing his W2's i noticed a 1099 MISC with an amount under
box 7 non-employee compensation...which tells me this was some form of commision....
when i questioned the client so see if he was no longer with the mortgage company...and operating as an LLC (which was with the recipients' name on th 1099MISC)...he stated to me he is still with the organization????....he informed me he operates/oversees branch
offices for his current employer in which he is reimbursed based on sales production....


my question is????.....how do i handle this....he cannot receive a W2 and a 1099MISC....is this his employers' way of avoiding payroll, soc sec,and medicare taxes
based on his commissions...my client had told me his employers' accounting dept told
him to create an LLC for himself...without giving him a reason why.....should i have my client produce a new W2 with the commisions included....or how would i handle this
delicate situation?????.....


please help......

[RitaB]

It happens

I have seen people get both a 1099 and a W-2 from the same payer. Who issued the form is irrelevant. The type of work a person does and the manner performed can certainly vary during a given year. Just do the return correctly without regard to your feelings about why the employee also had sub-contractor type pay from the same payer. Complete the Sch C and deduct applicable expenses.

Was employer avoiding payroll tax? Yeah, probably, and the worker cashed the checks. He's still working there, so I wouldn't stir the stew, so to speak.

Too late to form an LLC after it's all "gone down." (I really do not see why that would help anyway.) Also, I assume your client's SSN is on the 1099, so I don't see how the name being wrong will be a factor at all.

Don't sweat this. You can't save 'em all, Hasselhoff.

(I've always wanted to say that.)

[BHoffman]

Agree with RCooper. I've seen stuff like this too. The employer is taking the risk.

[RitaB]

Right, and who knows?

The employer is taking the risk.

Maybe the employer completed the forms correctly. Maybe the worker really was a sub-contracter for the compensation included on the 1099.

I never worry about whether the person should have been an employee. It's done, and the worker agreed to the situation (maybe without a clue) by accepting the compensation.

I could have had the salad. I didn't, but I'm not going to turn in the restaurant now because the lasagna was not in my best interest.

I realize that makes no sense. Best I can do right now.

[Edsel]

Lasagna?

Cooper, you're losing it.

But I agree entirely with everything you said. This practice used to be very commonplace among auto dealerships - they had what they called a "December promotion" of sorts and they would pay salesman commissions/bonuses and put them all on a 1099.

Their rationale was that the promotions were "over and above" their routine compensation plan. Doesn't really make sense, and all the sophisticated explanations amounted to no more than just a bonus like anyone would pay.

We can't save the world, can we? Whatever is "wrong" here is the problem of the employer. A 1099 and W-2 to the same person in the same year would appear to be a red flag if IRS is still in the business of auditing payroll.

[RitaB]

I THOUGHT I was losing it

Glad to know I was right about that...

My pastor says salad is what food eats.

[DaveO]

IMHO one of the worse offenders here are the school districts. We have ESU's (Educational Service Units) which cover several schools and perhaps several school districts. They provide purchasing assistance and administrative resources to the member schools. I often see cases where a teacher with some special skill set such as doing student evaluations will be paid by the ESU on a 1099 misc for performing these services for schools other than their own within the ESU. After seeing this for a couple years I asked the teacher why they didn't follow the rules and she said the ESU told her they weren't set up for payroll. I wonder how that excuse would fly for the roofer or painter in a payroll audit?

[Black Bart]

No problem.

...he cannot receive a W2 and a 1099MISC...

People can and do receive both forms all the time. Right, wrong, whatever, that's all immaterial -- your job is simply to deal with the documents you have. Besides, they're far more at risk during a state employment security department payroll audit (or an insurance company premium audit) than they are from IRS.

...my question is????...how do i handle this delicate situation?????......

It's not really a delicate situation. Just put the 1099 on a C-EZ and forget it -- it will handle itself. You won't hear anything back from anybody except maybe the taxpayer griping about the SE tax.

[BHoffman]

You could feed them to our 1099 enforcement squad leader.

http://www.youtube.com/watch?v=AepyGm9Me6w&feature=PlayList&p=A9B38F25098ECAC6&playnext=1&playnext_from=PL&index=15

[Lion]

Clothing

They seem to be wearing a lot more clothing in Hawaii back then than I see on TV programs now, especially the girl running on the beach and the nightclub (hula) dancer. Nowadays, the female police officers/CSIs/etc. show more cleavage than on that opening in warm, sunny Hawaii. Even the shows set in chilly NY or Philly have their actresses in skimpier clothing.

[luke]

To B Hoffman

I Love It - Thanks!