19 Yr Old Student w/1099

[Possi]

My client's 19 yr old student dependent received a 1099 for $1778.

I read some strings from the past, and TTB (didn't address it, that I could find) and I can't figure out whether or not a tax return needs to be filed.

She is a student, clearly not self-employed. If it qualifies for L21, she is not required to file.

But the income is over $400, and issued on a 1099 Bx 7.

If we don't file, will it come back to bite me?

[RitaB]

Yes, I think it will

IRS will assume it is from self-employment. I mean, that's what I think when I see an amount in box 7. Donna, do you mean that the student is not self-employed just because she's a student? That wouldn't be THE determining factor. Maybe I misunderstood there.

[BOB W]

Definately need to file a return. If subject to SE the student will owe SE tax. Marking the return "not subject" to SE is at t/p risk.

[Burke]

It depends on what the 1099 was for. If it was for services rendered, then it is subject to SE tax. If it was a stipend from the school, or a prize or award, or some other such payment and just put in the wrong box by the issuer, then maybe not. Need to know exactly why she received the monies.

[Possi]

Not a steipen

No, she worked for the income.

So, even though she didn't make enough to require her to file a tax return, since it was over $400 AND it is subj to SE tax, she IS required to file, correct?

If correct, that is what I was afraid of... was hoping I was wrong! haha

[Burke]

You got it.

[dyne]

If the income was from a one-time situation which will not occur again, she would
not be required to pay self-employment tax and I propose she would not be required to
file a return. Still it might be better to file a return and report this income on line 21
so that IRS will not send her a CP2000 letter later.

[gkaiseril]

And when you file, include a reason you think this is not subject to SE tax.

If the student did this job as an employee the student would have paid FICA and Medicare taxes from dollar one. Even if the student never preforms in the wage job in the future.

You could also put it on line 21 and compute the SE tax.

You could also claim the student was misclassified as an IC and pay only 1/2 or the SE tax as an employee would have using form 8189 Uncollected Social Security and Medicare Tax on Wages. But carefully read the instructions and the consider the consequences to the employer when you use this form.

[spencer]

Wow, lots of

My client's 19 yr old student dependent received a 1099 for $1778.

I read some strings from the past, and TTB (didn't address it, that I could find) and I can't figure out whether or not a tax return needs to be filed.

She is a student, clearly not self-employed. If it qualifies for L21, she is not required to file.

But the income is over $400, and issued on a 1099 Bx 7.

If we don't file, will it come back to bite me?

ramifications. Good discussion. I benefitted. Thanks

[RitaB]

Absolutely

If the student did this job as an employee the student would have paid FICA and Medicare taxes from dollar one. Even if the student never preforms in the wage job in the future.

Absolutely correct. And we never get excited on here trying to recover the SS/MC taxes for those employees.

Subcontractors are only paying about 7.65% more than they would as employees. I try to make that clear to the taxpayer. For some reason, they think employees don't pay taxes, that the employer pays it all. (And yes, taxes are too high for everybody paying them, and "only" 7.65% stinks, lest you think I'm pro tax.)

I always like to pull out a W-2 and point out the withholdings to subcontractors. Here's what was withheld from this guy's pay. He just didn't miss it cause he never had it in his hands.

[gkaiseril]

Absolutely correct. And we never get excited on here trying to recover the SS/MC taxes for those employees.

But there is a very unique situation where a worker classified as an employee can recover FICA and Medicare taxes withheld. A foreign student in a medical internship or medical residency program that requires that student to return to their country of residency. But most teaching hospitals understand this situation now and do not collect the FICA and Medicare taxes.

The IC also gets the 1/2 of the self employment tax just as the employer gets to deduct the employer's share of the FICA and Medicare taxes.

At one time IC's did not get this deduction.

Also you should point out to the student that they are getting credit for Scocial Security and Medicare wages and this could result in their qualifying for Social Security and Medicare in the future even if they work for an employer that has opted out the Social Security or Medicare programs.

[spencer]

ok ok, so

ramifications. Good discussion. I benefitted. Thanks

I can't spell. Benefited anyway.

[Burke]

Also, NATP publication just noted a ruling where students paid by a school, college or university while enrolled there being excluded from FICA taxes. IRS is going to process retroactive refunds for medical students and residents based on 4/1/05 law change date.