correcting 1099 mis

[steve1245]

I have a client who received a letter from some one he did work for two years ago stating that they over payed in by $500.00 and now wants the money back. It was originally reported on a 1099 miscelaneous. First, do they have a legal stand at this point to even request the money back, and if so they must correct the 1099 misc and my client would then file an amended return correct?
Thanks

[Luis Mopeo]

It sounds like the IRS determined that your client was actually an employee, not an independent contractor. Does $500 approximate the amount that would have been withheld as employee FICA? Was the amount actually earned around $6,500 or so?

What was overpaid?

If the IRS reclassifies earnings as that of an employee (W2) instead of an independent contractor (1099), they'll hit up the employer for both the employee and employer share of FICA. Sometimes the employer goes back to the employee to take back the amount that should have been withheld.

Did your client file Schedule C and pay self-employment tax? If the client really was an employee, it might be worth it to file an amended return to get the SE tax back, then to pay the employer the $500. Theoretically your client would come out around $500 ahead, unless he'd lose expenses on Schedule C. If that's the case, the employer should issue your client a Corrected 1099 showing zero, and a W2 showing wages and withholding.

[steve1245]

independent contractor

Sorry I should have been more specific. He was an independent contractor. Now the person who he did the work for claims he over paid him. He filed a schedule c and paid self employment taxes. I would have to admit, it could almost bring up a case as an employee and not an independent contractor if this person think he is dictating what he should have paid. What are your thoughts?

[Jiggers]

$500 overpaid

If he really was overpaid he should refund the $500 and take a tax deduction on his Schedule C for this amount in this tax year. No corrected 1099 is necessary.

[veritas]

I have a client

which received aCp2000 letter stating we did not report 60k from a payor. I have a copy of the 1099, it was clearly made out as $600.00.

[newbie]

which received aCp2000 letter stating we did not report 60k from a payor. I have a copy of the 1099, it was clearly made out as $600.00.

I had a similar case a couple of years ago, I made a copy of the 1099MISC and wrote a letter with the IRS correspondence showing the error made was there fault. Received a letter back from IRS saying thanks for cerrespondence, no tax due, case closed.

[JohnH]

In the original post

You asked if the payer has a legal right to ask for the $500 back. Of course they do. They have a legal right to ask for anything they wish - they can ask for all of it back if they want to. But your client has a legal right to refuse to return it, unless there was a contract providing for some sort of repayment under certain terms. He may have either a legal or a moral obligation to do so, but you need more info. Matt's excellent point concerning whether he intends to do any work for the payer in the future may also figure into the equation.

If he does return the $500, then he would need to handle the tax reporting by an adjustment to gross receipts on his return for the year in which the payment is made (assumingnhe is a cash basis taxpayer).