My employer gives me both a W2 and a 1099. Legal?

Question

I work for a small firm. Every year they give me a W2 as well as a 1099. The 1099 is only for $4800, which is a lot less than the W2. Nevertheless, is this legal for the firm? If so, can I take advantage of the 1099 I am receiving and call myself self employed to deduct legitimate home office expenses? Could I also set up an SEP plan? I already have a SIMPLE IRA at work.

The 1099 I receive in addition to my W-2 is a 1099-MISC and it is labelled as independent Contractor. Basically my company pays me $400 a month this way, to supplement my W-2 earnings. So it is legitimate payment from them to me, and I do pay taxes on it. But my question has more to do with the second part. Since I am receiving the 1099, can I use it to my advantage and deduct home office expenses or setup an SEP retirement plan?

Answer 1

What type of 1099 is it? If it is a 1099-MISC, miscellaneous income, no, he is not corect to do that, if he's also giving you a W-2. If it is a 1099-DIV (dividend) or 1099-INT (interest), that may be correct, if you own stock and received dividends, or they paid you interest for some reason. To correctly answer, we need to know what type of 1099 it is, and more details regarding what this income represents. Also, is this income double-counted, i.e., did you actually receive what is on the W-2 plus what is on the 1099?

But short answer, if its a 1099-MISC and you are also getting a W-2 from the same company, that is not correct, you cannot be both an independant contractor and an employee of the same company.

Answer 2

I had this same problem, except I was getting paid ALL 1099 and I in no way qualified. I can't answer your question about whether it is legal, but I did use a legal service that helped answer my questions CORRECTLY and I didn't have to do a whole lot of leg work like searching through IRS guidelines etc. to find out the truth. Shoot me an email and I will point you in the right direction of the service. Not only does it offer legal advice, but they have tax attorneys on retainer for you to help you with your tax questions as well.
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Answer 3

What is the 1099 for? Is it nonemployee compensation? Or something else?

Do you own corporate stock as an employee and this is a dividend? If so, that would be legal. Is your employer a financial institution? If so, do you have an account with your employer that earns interest? That is also legal.

Either way, you have to pay tax on that $4800.

Answer 4

What exactly is the 1099 for?

If he does this every year I am amazed that the IRS hasn't busted him yet.

You are either an independent contractor or an employee, not both.

Unless you already own your own business and the 1099 is in the business name and paid for work/earnings that are not the same things as your regular job.

Answer 5

Its required by I.R.S from your employer to give you a 1099-MISC
since its a company reimbursement not your income. Its your advantage to received 1099 because you don't have to pay for SS taxes plus state, however, 1099 is considered as capital gain income.

Answer 6

You're one or the other, but not both, and if you met the requirements for self employed, your employer would not give you a w-2. Check with the State Employment Dept and the IRS on the legal definition of employee and independent contractor.

Answer 7

I don't see how you can be both an employee and a contractor. Go to http://www.irs.gov and look up the rules concerning the difference. He may be doing it illegally to avoid social security taxes.

Answer 8

This is not legal report him right away. ....... I don't know what I'm talking about