should my boss be reporting me as an independent contractor? i don't think i am one.?

Question

she has a small business- 3 employees- and reported my income in the self-employment line on the 1099 she sent me. my taxes were astronomical as a result. but i don't think i'm actually an independent contractor. i work sewing clothing for her from 9-5 mon-fri. she pays me by the hour and tells me what needs to be done every day. it looks like the irs says this is a regular employee. on the side, i do my own art that i show in a gallery. so that counts as self-employment. but for the sewing job, is she commiting fraud at my expense by reporting me falsely as an independent contractor? what should i do about it?

let me clarify:

i know i am being paid as an independent contractor. but i read the article online about who is an employee and who is an independent contractor, and i believe she is supposed to be making withholdings and paying me as a regular employee.

Answer 1

From your description, you are an employee.! You can ask IRS to make a determination. Here's what you do:

Go to IRS.gov, then forms & publications & download form SS-8 and instructions. This is a request for IRS to determine your status as employee. Detail the facts and circumstances.
This link will give you a heads up on the rules IRS will apply to the facts you state in form SS-8 (and the employer's reply) to make the determination:

http://www.irs.gov/govt/fslg/article/0,,id=110344,00.html

You are responsible for only the correct amount of income tax and Half of the Self-employment tax. which is the Soc. Sec & Medicare that would have been deducted if you had been treated as an employee. To determine the amount take 7.65% of your gross wage. The amount is then entered on line 9, Col. C of form 1040X.

Now, if have already filed your tax return, wait until their determination is final and amend your 2006 return using Form 1040X. Your state return will most likely also need amended because it keys off of Fed. Adjusted Gross Incme which will change.

If it is for an earlier year and the statute of limitations for refunds is an issue, prepare and file an amended return as if you were an employee. Write "Protective Claim" across the top of the first page.

You may find this over your head. If so, find a competent tax professional.

Good Luck!

Hank Roitman, EA
Sacramento, CA

Answer 2

I can't get over the amount of people that think the employer has a choice regarding whether a person they hire is am independent contractor or employee.

Employers do not have a choice in this matter.

But the reality of the situation is that yes, you can complain and you can notify the IRS to make a determination, but I think in most states employment is a will meaning that you can quit at any time BUT also that the employer can fire at any time.

You need to weigh the pros and cons.

Answer 3

If she pays by the hour and you have set hours, you are correct. You are NOT an independent contractor. You could submit a form SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. I don't know what the IRS will do once a determination is made, but at least you will have an Official answer.

Answer 4

Read http://www.irs.gov/govt/fslg/article/0,,id=110344,00.html
for more info on whether you can be classified as an independent contractor - from what you're saying, you should likely be classified as an employee from your sewing job.

What most of the responders above are missing is that the employer doesn't just get to decide for themselves, and pay you whichever way they want to - there are laws controlling whether you are an employee or an independent contractor, and the employer is obliged to follow that law. But as long as you're being paid on a 1099, you are stuck with the extra taxes. You can submit an SS-8 to ask for an IRS determination of your status.

Studnet 15 gives good info and is close to correct, except that your employer is not required to offer any benefits but she is required to pay the employer share of social security and medicare, and any other employer taxes that are required like unemployment comp.

Obviously for your artwork, you're on your own including for taxes, but it sounds like you already know that.

Answer 5

The time when the bubble bursts for employers with incorrect classifications is when their business takes a downturn and they have to lay off someone. The person then goes to the state unemployement agency to collect unemployment and the state says, "We have no record you were ever paid any wages." The person then says "But yes I was and here's how it went..." The state then goes back to the payor and starts asking a boatload of uncomfortable questions that result in an even larger boatload of taxes, penalties and interest. Or worse, one of the employees is injured on the job and tries to collect workers' compensation. Since there is no insurance, the business or business owner ends up with a large court judgement against them after the injured employee sues for the WC payments that should have been paid for by the employer.

On top of all that, there may be an issue for underpayment of earnings on overtime. The Department of Labor enforces this, and last I knew it only takes a call to them. They do all the rest, and the tip is confidential.

Answer 6

From what you have explained, it seems that you are indeed and EMPLOYEE. The laws state that if she sets your hours along with paying you an hourly wage, you should be classified as an employee. She should be withholding taxes from your paychecks and offering you benefits. It seems that she is trying to avoid paying her portion of the ss tax as well as insurance.
If when you were "hired", you completed a W-9 as opposed to a W-4 tell her that you feel that your status has changed. If she is really seeking to do the right thing, the transition should be relatively easy. If not, you may have to contact your local labor board.

Answer 7

She is taking advantage of you. If you want to keep this job, then plan on the extra taxes and either save up to pay them or send in quarterly estimated tax payments.

If you do not want to keep this job, you could have filed a tax return asserting that the money was wages, reporting them on Line 7 of Form 1040. Then fill out and attach the form for Social Security Taxes on Unreported Tip Income (Form 4137) crossing out the word "Tip" and replacing with "Wages". You would have to mail in this return. You would still have to pay 7.65% payroll tax, but not the double SE tax. Your employer would get into a pile of trouble and fines. Probably not something you want to do to save 7.65%.

Answer 8

You'd have to speak with a CPA or lawyer on the legality of this issue. If this is steady employment, you really should have withholding taken out of your pay. Otherwise, you're getting hit by this huge burden at tax time. This could open you upto penalities. The IRS doesn't mind holding onto extra money to pay you in April, but they don't enjoy receiving their pay late.

Answer 9

check this website out:

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html


i was hired as an IC at my job when i was a temp...but your case seems a little different...

Answer 10

Hire a CPA to review it and then if they tell you she is claiming the wrong things on you, go to her and tell her that your CPA said you need to be claimed differently because the tax burden is against you.