Taxpayer works for family-owned business and always received a W-2 in years past. Net wages for 2012 were same as previous years and employer did not provide paystubs. At end of year employer gave a 1099 rather than a W-2. Employee thought that they were having payroll taxes withheld (I know, you would think they would have asked where their paystubs were). Is their only option to submit Form SS-8 for an IRS determination. They are very hesitant to do that being the business is family-owned. Taxpayer has left company over this issue.
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Their other option is to file a Schedule C. -
Might be possible to use form 8919 if applicable. This might at least reduce the SS and medicare portion he would owe.Comment
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They've already left the company - I'd be sure to ask if they're prepared to potentially leave the family as well before recommending the SS-8 / 8919 route."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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I had a client go through a employee classification audit last year. No fun at all. The fact that he was treated as an employee before and was changed to a contractor without his knowledge would put the so called employer clearly in the wrong IMHO. I would figure the tax for a "C" and go back to the "employer" and offer them the chance to write a check for the tax otherwise do the 8919.In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
Alexis de TocquevilleComment
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Dave I like that idea however, it appears that the emplorer intentionally hid the fact that payroll tax wasn't being paid by not providing the employee with a check stub. I also find it hard to believe that there was no conversation between the two prior to the change. I would ask the employee to ask the employer for documentation that explains why the change was made.
One big question is, if the employer wasn't withholding taxes why didn't the employee notice the change in the amount of his pay? Or why he wasn't getting paystubs. I think there is more to this than you are being told. Before the sub-W2 is done be sure it is the employer who errored. I don't think you should file the return until you have a clearer picture.Believe nothing you have not personally researched and verified.Comment
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My two cents
I first of all have to agree with the thought that the taxpayer may be by birth or marriage part of the family that owns the business and if so needs to consider who in the family will join the owner(s) in being angry with him if he does anything other than file a Sch C. On the other hand I do not see anything unusual about a person who is not working in accounting or finance failing to ask questions when they stop getting a pay stub and payroll deductions. Few of my clients if any would ask questions in that situation. That said, I would offer to meet with the client and the owners and I like the idea of asking if they would rather pay his tax bill than risk being visited by the IRS after we file with request for reclassification.Comment
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It sounds like
From the original post, the bottom line pay stayed the same. In essence, the net wages from 2011 and the gross contract labor amount for 2012 were the same. The gross compensation is what changed. Which would really be the bigger issue for me personally.Originally posted by taxea View Post
Agree that there may be more to this, but I will say that I personally would rather pay both shares of SS/MC tax than have more conflict with family. Or anybody, actually.
I would spell it out to my client that he will recover $765 per $10,000 of compensation, less my fee, if he wants to go the 8919 route.Last edited by RitaB; 03-03-2013, 09:48 AM.If you loan someone $20 and never see them again, it was probably worth it.Comment
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New business client for me
New business client for me last year who was in the process of hiring independent contractors though I suggested they be employees. Nevertheless the business went with IC's and I told the business owner to draw up an IC contract for each IC especially spelling out NO Fed and St income tax will be witheld etc.Comment
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1099 instead of W-2
You are correct, net paychecks did not change. Taxpayer is torn - he knows will cause family problems if he does not just accept the 1099, but he doesn't have the money to pay the taxes either. He thought he was paying into federal/state withholdings and all required taxes were being withheld throughout the year. I can't believe a family member would do that to another family member; but that is the world we live in; very sad.Originally posted by RitaB View PostComment
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If the client doesn't want to create problems in the family and he doesn't have the money to pay the taxes, then it's time to move onto what does he do? Sounds like he needs to start thinking about an installment agreement. If that is done and later made known to the other family members, it might even serve as an opportunity to discuss the financial hardship created by the employer and maybe even another opportunity for them to make it right."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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If he wants to keep peace in the family as well as keep his own stress level down and not have any further nasty surprised next tax season, he should start looking for a new job. And/or make ES payments.Comment
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How about this...you as the preparer know that what was done, if done with no knowledge by your client, was wrong. If you do an 8919 doesn't the form require that the box reporting the employer be checked?
If you do a Sch C is it possible that the business, client and you are conspiring to defraud the IRS? It isn't like you don't have prior knowledge. This would be my concern. I am not the least bit concerned about ruffling feathers when it comes to keeping my license clean. And I would be very upset as the client to find that the family was taking advantage of me.Believe nothing you have not personally researched and verified.Comment
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