1099 client reclassified as W2

[jeff501]

Have a client who worked at a place for two years and was paid as an independent contractor. She should have been classified as an employee the entire time, met the employee requirement etc, I sent her to the local IRS office for help.

Long story short, the former workplace now has to reclassify her as an employee and issue a W2 form for both years. My client gets a call yesterday saying she had to pay back the FICA taxes that should have been withheld from her in the first place before they'll give her the W2 forms.

They were in the wrong the entire time. I don't feel my client has to pay them anything as it was their fault all along they paid her as an independent contractor. They really want her to help pay for their mistake so they don't have to eat the taxes, as they have to pay what should have been originally withheld.

Does anyone know if this employer can legally require her to pay her share of FICA that should have been withheld all along?

[WhiteOleander]

It is my understnding that if an employer makes an error on the taxes withheld, they are the ones reponsible for the payment. Read page 23-5 right hand column in the deluxe book. It gives a brief discussion about this.

In any case, an employer is not allowed to withold a W-2 from an employee. They should contact the IRS again if needed.

[thomtax]

Of course, it needs to be kept in mind by having her go to the IRS repeatedly, her time working for this company is probably going to be of a limited duration. I'm not saying that the company is right, but we live in a real world, not an ideal theoretical one. It's easy for you and me to tell a client what the correct thing to do is, but then we do not have to live with the "kick back" from the employer. Knowing what to do is sometimes a "catch 22".

Also, regarding the FICA repayment, if you handle it correctly and file amended returns, she will be getting an equivalent refund from her self employment tax paid, so will not really be out any extra money. In fact, she will be getting back the 15.3% and only giving them the basically 7.5%.

Good Luck,
LT

[FEDUKE404]

Sch SE should more than offset her half?

...Also, regarding the FICA repayment, if you handle it correctly and file amended returns, she will be getting an equivalent refund from her self employment tax paid, so will not really be out any extra money. In fact, she will be getting back the 15.3% and only giving them the basically 7.5%.

Good Luck,
LT

LT, that's exactly what I was thinking as I read through the comments.

Of course, if she wasn't "in business" or whatever......then no SE tax would have been prepared in the first place (that's what I've learned here )......so perhaps she would then come out on the short end.

And then there is always "Plan B" where she would not repay the employer and then the employer could raise the amount of the taxable wages paid to her by paying "her" share of the original FICA to Soc Sec. That's an end run, but possible?? My guess is the employer is now liable for paying the full FICA/Med stuff, and likely some FUTI/SUTI as well.

Yeah, I probably would not go back to work with them.......

FE

[taxea]

Of course, it needs to be kept in mind by having her go to the IRS repeatedly, her time working for this company is probably going to be of a limited duration. I'm not saying that the company is right, but we live in a real world, not an ideal theoretical one. It's easy for you and me to tell a client what the correct thing to do is, but then we do not have to live with the "kick back" from the employer. Knowing what to do is sometimes a "catch 22".

Also, regarding the FICA repayment, if you handle it correctly and file amended returns, she will be getting an equivalent refund from her self employment tax paid, so will not really be out any extra money. In fact, she will be getting back the 15.3% and only giving them the basically 7.5%.

Good Luck,
LT

And I do believe she might have a case for unlawful firing

[Burke]

And then there is always "Plan B" where she would not repay the employer and then the employer could raise the amount of the taxable wages paid to her by paying "her" share of the original FICA to Soc Sec. That's an end run, but possible?? My guess is the employer is now liable for paying the full FICA/Med stuff, and likely some FUTI/SUTI as well.
FE

Yes, he is liable for paying it to the IRS. But apparently there is nothing in the law that keeps him from going back to the employee for her 1/2 share. IF he can get it...... And yes, he can include it in her next W-2, IMO. I have a client who pays her housekeeper's 1/2 share of SE tax every year. And that is how it is treated.

[Kram BergGold]

My understanding

If the employer can prove to IRS that the SE tax was paid they can credit that against what they owe.