Employer issued 1099 for my daughter and did not withhold medicare, FICA, or Federal. Is this allowed?

Question

My daughter said she was not ever given a pay stub and just paid outright. Is this legal, and how can it be? I told my daughter that she needs to look for a different afterschool job because she has a tax burden and social security and medicare HAVE to be paid. Do we need to contact the SSA and see what needs to be paid, and doesn't her employer HAVE to pay a portion? I don't see how they can fall into a category that makes its employees all "self-employed" because it is a private afterschool program. Is it legal if employees do not make more than a certain amount and if so, what is that amount?
Thanks fot your help. This means that my daughter will not receive a refund this year, but will owe, which is CRAZY since she is a full-time student.

Answer 1

Your daughter was considered contract labor, maybe because of the afterschool program (the school had a contract for the program). Assuming she had no expenses related to this work, she must file a tax return if the 1099 shows $400 or more in compensation.

She will file Schedule C showing the 1099 amount. Schedule SE will compute the Social Security and Medicare taxes owed, which must be paid with the tax return.

Unless her compensation was more than $5,150, she will no owe income tax. She will owe about 15% of her compensation for Social Security and Medicare taxes.

Answer 2

She's been classified as an independent contractor, not as an employee. That may or may not be correct. If you and she feel that she should be classified as an employee, get a copy of Form SS-8 from the IRS website and file it with the IRS. The will investigate the situation and determine if she is an employee or independent contractor and notify the "employer" and her of the decision.

If she has more than $400 in Self-Employment income, she must file a tax return and pay any taxes due.

To pay the taxes due, she needs to file a Form 1040 with Schedule C or C-EZ to account for the income and business expenses. Then she needs to file a Schedule SE to calculate the Self-Employment tax, which is 15.3% of the net profit from the business activity.

If the total tax bill due is in excess of $1,000.00 there will probably be penalties and interest due for underpayment of taxes if she didn't make quarterly estimated tax payments using Form 1040ES throughout the year.

If there is a penalty, and if the IRS determines that she is an independent contractor, she should start making those quarterly estimated tax payments starting on April 17th.

Answer 3

Unfortunately this is allowed. You really need to look into whether your daughter is actually and independent contractor as defined by the IRS. If she works unsupervised and has control over her work, then she would be independent but I doubt an afterschool program would have independent people working for it. It sounds like the people running the program may be trying to get out of being an employer and are classifying everyone as independent. You can report the employer to the IRS and have them verify independent contractor status on the program's employee's but that will take time. I would suggest filing taxes with everything as it stands now and still report the employer. I would also suggest that your daughter find another place to work as this one sounds a little borderline on business practices. She need to make sure that she receives a paycheck and has withholding taken out. Also, question the employer on why she would be considered independent.

Answer 4

If someone is issued a 1099 they are independent contractor, not an employee. You can use tax software or contact a tax professional about how this should be handled. But no taxes were taken so taxes will have to be paid to the state and IRS. If she doesn't want to find another job, she should ask her employer to make her an actual employee. If they don't want to do that you can refer to the 20 factor test that defines the criteria or what an employee is and what an independent contractor is. This may help you and the employer define the employment situation a little better. http://www.twc.state.tx.us/news/efte/appx_d_irs_ic_test.html

Answer 5

This scenario has to do with Employee v. Independent Contractor.

Visit the site irs.gov and do a search.

Her afterschool program must have determined years and years ago, that
the people they hire fall into the independent contractor category and therefore, not subject to withholding.

After you read the prerequisites for each category, you will most likely accept that what they did is "legal".

As an alternative to when your daughter is hired as an "independent contractor", start filing federal estimates (1040-ES) and state estimates, on a quarterly basis.

As a rule of thumb for federal purposes take her pay for three months, multiply
it @ 15.3% for social security and add 15% for federal withholding. This should cover her for each quarterly period.

Your ascertation regarding either a base or a ceiling when it comes to "self-employed" earnings is totally a misunderstanding of the concept of "employee" versus "independent contractor".

Best Wishes.

Answer 6

Depends how much income she made. I believe you only are "required" (meaning you can file if you want still but IRS doesn't need you to) to file taxes if you made at least $7500. Yes, if taxes are owed based on her income it is illegal for employer not to take taxes out (again depending on how much she earned)... this is commonly called paying under the table. From your description sounds like this job did not earn over $7500 and she is not req'd to file then anyway..