California-only W-2

[appelman]

Some clients receive occasional payments from Educational Testing Service, usually one or two hundred dollars. These are reported on W2's with federal boxes blank and state boxes filled in for California. The W2's are marked "For California reporting only. See Form 1099-misc for federal tax reporting." Also provided is a substitute 1099-misc for the same income that does not indicate in what box the amount belongs.

My questions are:

1) What is the justification for doing it this way?

2) What is the best way to report it?

[taxea]

Some clients receive occasional payments from Educational Testing Service, usually one or two hundred dollars. These are reported on W2's with federal boxes blank and state boxes filled in for California. The W2's are marked "For California reporting only. See Form 1099-misc for federal tax reporting." Also provided is a substitute 1099-misc for the same income that does not indicate in what box the amount belongs.

My questions are:

1) What is the justification for doing it this way?

2) What is the best way to report it?

What type of testing is this? Perhaps the issuer could tell you why a W2 and 1099. Maybe this way because they believe the income isn't federally taxable.
What the heck is a sub-1099?

[appelman]

No, I don't think so.

It was payment for a teacher to proctor a test. A substitute 1099-misc is an unconventional form developed by the payer. It calls itself a 1099-misc, but merely states the amount and has no boxes.

[FEDUKE404]

They are doing WHAT ?

I would love to hear Educational Testing Services explanation as to how they have a person with California "wage" income but that same person has no federal "wage" income.

Although I've never encountered such, from years not that too far back I recall any "zero income" W2 for US wages would automatically reject for efiling.

It would also seem a bit ridiculous to file a federal income with the accompanying CA return "removing" the misc income amount but somehow then adding some "more income" to the state return.

Why don't the nimrods just file a "real" Form 1099-MISC and get it over with??

Glad I don't have to deal with CA returns. . . . . . . .

FE

[David1980]

I would love to hear Educational Testing Services explanation as to how they have a person with California "wage" income but that same person has no federal "wage" income.

Although I've never encountered such, from years not that too far back I recall any "zero income" W2 for US wages would automatically reject for efiling.

It would also seem a bit ridiculous to file a federal income with the accompanying CA return "removing" the misc income amount but somehow then adding some "more income" to the state return.

Why don't the nimrods just file a "real" Form 1099-MISC and get it over with??

Glad I don't have to deal with CA returns. . . . . . . .

FE

It could be there's some legitimate purpose behind doing a 1099-MISC for fed and W-2 for state, but what comes to mind to me is perhaps California is more aggressively reclassifying ICs to employees and they're trying to avoid California going after them while still avoiding the employer portion of payroll taxes? Just one theory.

[DTS]

Ca w-2

I have not seen this for any W-2 specific to CA.

[Burke]

Don't know about CA practices, but DTS's theory sounds right. Have lots of these in VA. They issue 1099MISC only, substitute form. Goes on Line 21. The teachers only proctor these exams once a year (SATs).

[Y2KEA]

CA is very aggressive about classifying all workers as employees. This way CA EDD collects the EE SDI & ER SUI & ETT. Unless the worker has a contractors license, he has W2 income. The worker then gets a 1099MISC for fed puproses. While I have heard of this scenario in CE classes, I have not run across it yet in my practice.

[taxea]

I can see where this would be input on 1040 ln 21 not subject to SE, but I don't see any way that it is not subject to fed tax.