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  1. #1
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    Default Taxes if Misclassified as an Independent Contractor

    My question involves independent contractors in the state of: Texas

    I worked for about four months as a "contractor" for a small business locally. I kept track of all of my pay and everything and don't necessarily need to have the 1099, but would like to see a copy of it because to be honest I don't trust the guy I was working for. If he claims he paid me a larger amount than what I file, what happens?

    Also, I will be filling out an SS-8 form to determine whether or not I was actually a contractor in the first place (was required to work in his office, received training, required to use his equipment, etc.). If I file this, and it comes back that I should have been classified as an employee the entire time, am I going to be responsible for paying additional taxes? Will the self-employment taxes I will be paying be refunded to me?

    I just want to make sure everything is taken care of correctly. I also saw something on IRS.gov regarding a form for social security (8919). Should I fill out the 8919 and the SS-8 now and send them with the rest of my tax documents or wait?

  2. #2
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    Default Re: 1099 Among Other Things

    Quote Quoting hdot
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    I worked for about four months as a "contractor" for a small business locally. I kept track of all of my pay and everything and don't necessarily need to have the 1099, but would like to see a copy of it because to be honest I don't trust the guy I was working for. If he claims he paid me a larger amount than what I file, what happens?
    If he files a 1099 for you, he's legally obligated to send you a copy. If it shows the wrong amount, you ask him to issue a corrected form.
    Quote Quoting hdot
    Also, I will be filling out an SS-8 form to determine whether or not I was actually a contractor in the first place (was required to work in his office, received training, required to use his equipment, etc.). If I file this, and it comes back that I should have been classified as an employee the entire time, am I going to be responsible for paying additional taxes? Will the self-employment taxes I will be paying be refunded to me?
    If you are reclassified as an employee after you file, and that necessitates changes in your return, amend your tax return accordingly.
    Quote Quoting hdot
    I also saw something on IRS.gov regarding a form for social security (8919). Should I fill out the 8919 and the SS-8 now and send them with the rest of my tax documents or wait?
    If you want the IRS to investigate whether you were an employee under federal law, you should file the requisite forms to trigger the investigation.

  3. #3
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    Default Re: 1099 Among Other Things

    Form 8919 is the form you should file if you were actually an employee. Receipt of a 1099-MISC does not determine whether you were an employee or an independent contractor, the facts and circumstances of the work you did in the eyes of the law determine this. Form 8919 is the mechanism for you to pay your social security tax and medicare tax if your employer did not handle this properly. Yes, you will need to file SS-8 in conjunction with filing 8919 with your 1040. Be aware that if the IRS rules against you on the SS-8 you will likely owe penalties and interest on the Self Employment tax you should have paid, but did not.

  4. #4
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    Default Re: 1099 Among Other Things

    That's a good point. Would you suggest (at least in an ambiguous case) filing the SS-8 and waiting for the IRS ruling, and filing the tax return as an independent contractor unless the ruling came back prior to the filing deadline? Then amending your return if you received a subsequent favorable ruling?

  5. #5
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    Default Re: 1099 Among Other Things

    Quote Quoting aaron
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    That's a good point. Would you suggest (at least in an ambiguous case) filing the SS-8 and waiting for the IRS ruling, and filing the tax return as an independent contractor unless the ruling came back prior to the filing deadline? Then amending your return if you received a subsequent favorable ruling?
    If the case was truly ambiguous I would advise that. However, a fairly decent percentage of cases are not ambiguous at all, therefore there is no reason why they should not file form 8919 right off the bat. That is the whole purpose of form 8919...to give immediate relief to those employees who were misclassified by their employer as contractors...and to help the IRS find out who those employers are, more rapidly.

  6. #6
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    Default Re: Taxes if Misclassified as an Independent Contractor

    I'm wondering about the way I manage 1099's at the "senior center" now.

    For most, musicians, voga instructors and so forth, we have standard "subcontractor agreements", for 12 month periods which they sign, and renew, acknowledging they are subcontractors, with the procedure that they submit monthly invoices for payment. The contracts look solid, and I beleive I won't have problems with this group.

    We have a minor problem here where a few had refused to renew, not agreeing to the old rates, yet still show up for work.

    On the other hand, we have employee custodians that take month long vacations back to their countries, that often stretch to two or three months. We have hired local people to substitute, for months at a time, and 1099 them. I have not made them sign our standard subcontractor agreements, as I didn't see the need to.

    Based on the above discussion, it appears someone can unilaterally force a company to make them employees via the SS-8. These people come in, use our equipment, and have to present during our hours of operation, and follow the directions of our management.

    We are a "city funded" organization, and the New York City determines the "head count", which they monitor closely as they pay full "health benefits". If anyone can unilaterally force us to make them employees, we'll be in violations of our contract with the city, and blow our budget sky high. In other words, it'll be a big mess.

  7. #7
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    Default Re: 1099 Among Other Things

    Quote Quoting aaron
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    That's a good point. Would you suggest (at least in an ambiguous case) filing the SS-8 and waiting for the IRS ruling, and filing the tax return as an independent contractor unless the ruling came back prior to the filing deadline? Then amending your return if you received a subsequent favorable ruling?
    That's always the safest way to go. You can always get a refund of an overpayment and you would avoid any penalty or interest.

  8. #8
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    Default Re: Taxes if Misclassified as an Independent Contractor

    Quote Quoting SChinFChin
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    Based on the above discussion, it appears someone can unilaterally force a company to make them employees via the SS-8. These people come in, use our equipment, and have to present during our hours of operation, and follow the directions of our management.
    No, it is not true that a worker can unilaterally force a company to make them an employee. As I said before, the law determines a worker's status, not the employer nor the employee/contractor. What the SS-8 does is to formally request that the IRS examine the circumstances under which the work was performed, apply the law, and determine the worker's status. If a worker files a form SS-8, an inquiry is then sent to the employer/company and they have the opportunity to describe the circumstances under which the work was performed. Regardless of which party asks for the determination, the other party is afforded the opportunity to respond as well.

    From your description, it sounds as if the music instructors would be determined to be independent contractors and the custodial staff would be employees. Length of employment is not a consideration.

  9. #9
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    Default Re: Taxes if Misclassified as an Independent Contractor

    Quote Quoting Bubba Jimmy
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    From your description, it sounds as if the music instructors would be determined to be independent contractors and the custodial staff would be employees. Length of employment is not a consideration.
    Thanks.

    I think I'll have the custodians sign a "subcontractor" agreement, which starts off by saying that they understand that they are being hired as a subcontractor. It goes on to say that they are to bill us for work done. In cases where some subcontractors are not equipped to create bills, I make one up for them to sign before issuing the checks.

    I don't know if it'll cover us, but I can't see someone signing a subcontactor agreement, and billing us, suddenly thinking "wait, I think I'm an employee".

    We have the option of hiring subcontractors through a temp agency, who pays them minimum wage, a little over $7/hour, and charge us $10.00 to $11.00/hour. We pay 1099 custodians a bit over $10.00 an hour, so it's not even a matter of a major cost difference.

    The big factor that worries me is I notice is people doing custodial work through temp agencies are often parolees. The 1099 guys we hire locally, we know who they are, and feel pretty safe.

    My other issue with paying someone as an employee for temporary work is we pay "unemployment insurance", whose rates goes up if we hire someone temporary, we pay the UI premiums, then he goes on to collect UI afterwards. That drives our rates up. And I don't know enough about UI law here in NY to say we can contest things by saying this person can't collect because he knew he was hired temporary. But, I beleive I still have to pay UI for W-2 workers even if he doesn't plan to collect.

  10. #10
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    Default Re: Taxes if Misclassified as an Independent Contractor

    Yes, this is why many organizations like to issue a 1099 even for low paid workers. They save the unemployment insurance cost, the worker's compensation insurance premium, and the matching employment taxes for social security and medicare. The legal way to do that is to hire people through an employee leasing firm who provides these benefits to the worker. That is why you pay a premium over the hourly wage the worker receives. It covers those costs as well as a profit for the leasing company.

    Taking a worker who you are paying and compelling them to sign an agreement in order to keep their job will not likely change anything. There is no one single factor that determines a worker's status. You should review http://www.irs.gov/businesses/small/...=99921,00.html before making any final decisions.

    Workers deserve to be covered under unemployment insurance if they are in fact employees, because the law provides this benefit for them. They also deserve insurance if they are injured on the job for the same reason. Denying them these benefits to save money for the employer is abusive to people who already don't make much money and have few options but to endure what ever is imposed upon them.

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