1099-What do I do when I have been wrongly classified as an Independent Contractor?

Question

The company I work for hired me as an Independent Contractor. At the time, I didn't really know what that meant, but have since discovered that we were wrongly classified and are truly employees of the company. Now I am going to be liable for a self-employment taxes and other taxes that my employer would have been responsible for. What can I do now to fix this situation?

Hi, thanks for answering...what is the EDD?

Answer 1

"Shotgun" is correct as far as he goes. Here's how to try to FIX the problem:

File Form SS-8 with the IRS. Here's a link: http://www.irs.gov/pub/irs-pdf/fss8.pdf

The IRS will investigate the matter and make a determination of your employee/contractor status and advise both you and the employer of the outcome.

This can take several weeks or months to complete. If a determination has not been made by the filing deadline, you should file your return as a self-employed independent contractor and pay any taxes due.

If the determination goes in your favor, i.e. you are classified as an employee, the employer will have to provide a Form W2 listing your wages and withholdings. The SS and Medicare taxes will show up although there probably won't be any Federal or State income tax withholdings. The employer may bill your for your share of the SS and Medicare withholdings.

Take the W2 and file an amended return on Form 1040X. The IRS will refund any overpaid taxes and rebate any penalties and interest due on the previously underpaid SE taxes. You can then use that refund to pay the employer your share of the SS and Med withholdings for the tax year.

It's messy and time consuming but it's usually worthwhile to pursue this if you truly feel that you are an employee.

Answer 2

Your employer should have had you sign a form W-9 for independent contractors. You should have received notice that you were being considered as an IC, but the fact that tax deductions were missing from your wages should have tipped you off. I say contact your state's department of revenue to straighten it out. You're employer may have to cough up the taxed on you, but remember it's a contribution from you too. Check with either an accountant or the state department to find out what your taxes would be either way. At the end of the year you should have received a 1099 showing your untaxed wages.By the way, technically you are not a "1099" a 1099 is the Federal tax form you receive at the end of the year. You were classified as an Independent Contractor, which means your employer should have made you complete a W-9 just like how you completed a W-4 to be classified as an Employee. I would get in contact with a labor attorney to find out if you have any remedies against your employer and if you are even eligible to be classified as an Independent Contractor (there are restrictions).

Answer 3

You might want to read the link below to the IRS website which explains what is, and isn't an Independent Contractor.

http://www.irs.gov/businesses/small/article/0,,id=115041,00.html

I am a Tax Preparer and I hate to see people come in with a 1099-Misc instead of W-2's because as you noted, no taxes have been withheld, no Social Security has been withheld, and no Medicare has been withheld. Most people aren't aware that when you are employed by a company, you are paying 6.2% of your income towards Social Security, and the employer is also paying 6.2%. You are paying 1.45% toward Medicare, and the company is paying the other half, or 1.45%. The company is also paying for you to have coverage in the Unemployment Compensation system as well. When you are paid on a 1099-Misc instead of a W-2, you pay it all.......It's called the Self Employment Tax as you noted. So right off the bat, you owe about 15% of your income to the Government to pay for all that, BEFORE you start paying income taxes on the income you got. Unfortunately, it doesn't end there either. Most people don't realize that income taxes are due as you earn income, not by April 15th. April 15th is just the final adjustment of the taxes you were supposed to be paying in all year as you earned income. When you are paid on a W-2, the employer withholds money from your paycheck and sends it to the IRS all during the year as you earn it. If you are paid on a 1099 Misc, nothing has been paid in to the IRS as you earned it, so you can also be hit with penalties and interest for not making at least quarterly tax payments during the year, which adds insult to injury. I don't know to whom you complain if you don't fit the defination of an Independent Contractor but was paid as one, but it would be to your advantage to invest some time trying to find out. Maybe the IRS, or maybe the Dept of Labor, but something sure needs to be done to stop this as more and more employers are skipping out on paying their fair share of the burden and placing it all on the worker. Good luck to you.

Answer 4

The past is done. You will have to come up with the funds to pay your taxes. Going forward you can insist on being treated as an employee. The IRS offers expedited rulings to provide your employer. The IRS has a vested interest in having doubtful cases treated as employees.

Answer 5

The answer from "bostonianinmo" was right on.

I can only add one thing......

If you do file the SS8 and turn your company in, they will find a reason to fire you. Even if you have been the perfect employee and have never done anything wrong, they will find a reason to get rid of you.

Sad but true.

Answer 6

You can contact the EDD for your state and let them know. The company will be responsible for making the corrections.