Sometimes you take a job and it seems like it will be the best gig in the world. The employer tells you that they will pay you weekly, that they won’t take taxes out and that they’ll even give you a 1099 at the end of the year so you can file your taxes. But then you get that 1099, take it to your tax preparer and they tell you that you owe a bunch of money in taxes. Wait? How can this be? Your preparer tells you that your 1099 causes you to be treated as an independent contractor or self-employed for tax purposes. Self-employed? That can’t be right. I worked as an employee for that company for the entire year! Thus, the problem at hand.
In this post on our sister site, we discuss how an employer is supposed to make the proper determination as well as what the tax differences are via being W2 versus 1099. But when they improperly classify you as an independent contractor, it can cause you a whole lot of grief come tax time. So how do you fix it? Well, it’s really a two step process of trying to resolve the situation and filing the tax return.
Obtaining Proper Classification
The first thing you want to do is bring the matter to the attention of your employer. Let them know that you don’t believe that the classification is correct and that you believe you were an employee. This IRS site will give you a little assistance in making that determination. If the employer is uncooperative or flat out refuses that you were an employee, you can ask the IRS to make the determination via filing form Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. The employer will then need to respond to the IRS. Once the IRS rules, they will send a determination to you and the employer. If it is deemed that you were in fact an employee, the employer will then become liable for their share of the employment (payroll) taxes. The unfortunate thing is that so will you.
Filing A Misclassified Employee Tax Return
Listed below are the steps on how to file your taxes if you are a misclassified employee and don’t have a W2.
- File Form SS-8 so that you can begin the determination process.
- Review Form 8919 Uncollected Social Security and Medicare Tax on Wages.
- If you have a Form 1099-MISC from the employer, then you will have most of what you need to fill out columns A and B. If you don’t have that form, then you will need to obtain the information from the employer (who may not want to give you their EIN if the two of you aren’t on good terms).
- Tally up the amount of income that you received from the employer and enter it on line 6 of the form as well as line 7 of your Form 1040.
- Use lines 7 through 12 to calculate your share of the Social Security and Medicare tax. You will then enter this on line 58 of your Form 1040.
The downside to this is that you WILL have a liability with the IRS. No income, Social Security or Medicare taxes were taken out. But if you visit this page of our site, you can learn how we can help you resolve the issue with the IRS if you don’t want to tackle it on your own.