pay employees share of payroll taxes

[oceanlovin'ea]

I have a young man who has asked me to prepare his 2005 and 2006 tax returns. In 2005 he was selling concessions at the Atlanta Braves games and then later in the year at the Georgia games.

He was paid on a 1099 misc for the Braves games. Then his employer found out that he had to pay them as employees. So he received a W-2 from this same employer for the time he worked at the Georgia games. So he has a 1099 misc and W-2 from the same guy.

Since this employer knows that he was supposed to be paying them as employees, would there be anything wrong in paying only the employees share of the payroll taxes.

I would put it on the schedule C as income and deduct the whole amount as expense. Then do a substitute W-2 so that I could put it on Line 7 as wages and pay the employee share of the social security and medicare taxes.

He will still probably end up owing money but this might reduce the amount he would have to pay.

Thanks for your comments.

Linda F

[JohnH]

Form 4137

Linda: The usual way to handle this would be to use Form 4137 and enter the word "Wages" on Line 1. This will provide him with a means of paying only the employee half of the SocSec/Medicare taxes. It's also helpful to attach a copy of Form SS-8 marked "Not For Filing - For Information Purposes Only". The original of the SS-8 is usually sent to a different address, although since you say the employer has already reclassified everyone as employees, this might not be necessary. I've done it this way several times and never heard a word back about it.

However, before doing this I think you owe it to the client to discuss the pros & cons of this approach. The IRS may just accept the filing and do nothing further, but it's also possible they may go back to the employer for the other half of the SocSec/Med taxes. If they do this, the employer might get upset & never hire him again. If he doesn't care about this possible outcome, then go for it. But if he is interested in working for them in the future, he might want to consider whether it's worth saving one or two hundred of SocSec/Medicare taxes and risking being banned in the future. I'd make sure he understands all the repercussions before committing to a course of action.

[oceanlovin'ea]

Different job

That was in 2005. In 2006 he didn't work for that employer. He did work for a different vending company in 2006.

But he is not doing that work any more. He lives in Athens and drove to downtown Atlanta for every game.

So I will tell him what I think we should do and make sure he's okay with it but I think that will be best for him.

Thanks. Linda F

[DaveO]

Form 8919

The IRS has a draft of this form out for 2007. It is to be used for just this purpose.

[JohnH]

Good point

I didn't mention the 8819 because it's still a draft form. Once it's released, I wonder if it could be used for a prior (delinquent) year.

It does seem to address many of the more common situations of this type, but I wonder why they didn't either list more "reason" codes or else have an "Other" category allowing an explanation to be attached if the situation doesn't precisely fit one of their predetermined reasons. Maybe IRS really wants to place some sort of limits and discourage people from using this process, rarther than actually helping them.

[Luis Mopeo]

I didn't mention the 8819 because it's still a draft form. Once it's released, I wonder if it could be used for a prior (delinquent) year.

It does seem to address many of the more common situations of this type, but I wonder why they didn't either list more "reason" codes or else have an "Other" category allowing an explanation to be attached if the situation doesn't precisely fit one of their predetermined reasons. Maybe IRS really wants to place some sort of limits and discourage people from using this process, rarther than actually helping them.

I don't think the IRS wants to advertise the 8819 or 4137. You know how easily people in the general public will accept wrong tax information, especially if it saves them money. If the IRS encouraged use of these forms, there would be a rash of people using it thinking it's a legitimate way to save on SE tax.

I can hear it now. "Joe down at the corner tavern says because you're not an employee you can file a form and exempt yourself from the employer share of FICA."

I do think the IRS wants to keep the forms as quiet as possible.

[JohnH]

You may be onto something

Although the 4137 has been around for decades for reporting tips, I only noticed it being used for I/C's within the last 5-6 years (maybe a little more - time flies fast at my age).

The I/C issue has been a problem at least 30-40 years, so you'd think they would have focused on a defniitive form or policy before now. The SS-8 helps, but it isn't really useful for filing, other than as an information supplement. And the 20 common law factors are a mishmash of contradictions. Some of the discussions I've seen on this forum and others are testimony enough to that fact.

But you are probably right about IRS - develop a form to deal with a problem, but either don't publicize it or design it with so many restrictions that few people can really use it.

[oceanlovin'ea]

Very interesting

I prepared this return both ways - schedule c for his 1099 misc income with deduction for his mileage and putting the income on 4137 and only paying employee share of payroll taxes.

He actually ends up owing $200 less filing as subcontractor on schedule C!!!! He owed more income tax but less se tax the other way but it came out more.

So I guess I will just file him with his 1099's on schedule c and send it that way.

Good discussion anyway.

Thanks Linda F

[JohnH]

Mileage?

What mileage expense did he incur selling concessions - did he drive his car around in the stadium?

[oceanlovin'ea]

To the stadium

He lives in Athens, GA and the stadium is in Atlanta. He drove 54 miles one way every day there was a home game.

Linda F

[JohnH]

Communting expense

Unless he drove to the stadium from another place of work, the drive from Athens to Atlanta is a non-dedcutible commuting expense.