Several clients have come in to our Virginia Liberty Tax Service Office Locations with 1099 Forms, but have expressed concerns that they are NOT an independent contractor, but an employee and should have received a W2. While the two forms seem to report wages paid, they are only appropriate in certain—very different—situations. Issuing either form in the wrong instance causes the employer to misclassify the employee. This may have detrimental effects for both of you:
- It could adjust the amount of tax that you—the employee—owe to the federal or state government.
- It could adjust the amount of tax that the employer owes to the federal or state government or for social security.
- It may affect whether or not the employer is required to offer health insurance to its employees.
Employers that make this costly mistake are actually conducting an illegal activity which could cost the employer some big-time fines and penalties.
To our readers that run a place of business that employs others: Please be aware the IRS is looking very carefully at these employment issues. Employers that misclassify employees could be responsible for arrearages of social security, federal unemployment, and state unemployment. There are also fines on top of it! The hefty fines and penalties might cause you to lose your business! Please know the worker status of your employees and weigh your options carefully when choosing between a W2 and a 1099!
For taxpayers: If you feel that you are an employee that has been misclassified as an independent contractor, here’s how to handle your situation:
- File a Form SS-8 with the IRS along with your return. This form will ask you a series of questions to determine what classification of worker are you - employee or independent contractor
- File a Form 8919 with your return. This form will allow you to file your wages as an employee until the IRS makes a determination as to your worker classification on your Form SS-8.
If you want more information about this, please feel free to call me and we can discuss this.
Ray Nations, EA
If you find yourself in the lion’s den with the IRS,
Call Ray Nations, Enrolled Agent, to tame that mess!