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Wrong filing


Terry D EA

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A family member (teen age Niece) had her tax return prepared. The company the girl worked for issued a 1099 when they should have issued a W-2. The amount is very small. The preparer put this amount on line 21 subject to SE tax. I am of the opinion this is incorrect. My niece is not in the business of being self-employed at the age of 17. Also, she was given a work schedule which makes her an employee. The IRS has accepted her 2015 return and assessed penalties and interest. I have instructed her parents to pay the amount due and then we will amend the return based on what I stated earlier. Anyone agree or disagree?

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I disagree,  there is no age limit for a self employed person.  I agree that the preparer had no choice but to file subject to SE tax as 1099 was issued for earned income although as she did work/labor it should probably have been filed on 1040-Sch-C.  If your niece wants to contest the status (for employee) I believe there is an IRS form 8919 and SS-8, for procedure of doing that with an amended tax return.  Search IRS for "Misclassified Workers to File New Social Security Tax Form".

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You said the amount is very small.  Is the potential savings of S/E tax, penalties, and interest on that amount worth what you will charge them for doing the work?  If not, maybe leaving things as they are is the better choice, even more so if the daughter has any expectations of ever doing any more work for the company involved. 

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I love when my clients tell me "the amount is very small". To me, 10 cents is a very small amount, but for you it might be a few thousand of dollars. I always tell my clients, give me the amount and you save the adjectives.

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1 hour ago, Pacun said:

I love when my clients tell me "the amount is very small". To me, 10 cents is a very small amount, but for you it might be a few thousand of dollars. I always tell my clients, give me the amount and you save the adjectives.

Well, Terry is the one saying it's very small, but yeah, everybody that tells me, "I really didn't make anything on that," really made something on that.  Same as "but they held out the tax already".  Uh, they held out SOME tax, not THE tax.

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1 hour ago, RitaB said:

Well, Terry is the one saying it's very small, but yeah, everybody that tells me, "I really didn't make anything on that," really made something on that.  Same as "but they held out the tax already".  Uh, they held out SOME tax, not THE tax.

Nailed it !

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A daily question I receive, from employers wanting to know how to pay a "1099 employee" using our payroll software.  My stock answer is there is no such thing as a 1099 employee (I do not mention the rare exceptions, since I would rarely even recommend them).  I send a link to 20 questions type sheet, and a short inclusion of things such as setting hours, does the person have other clients, a business license, can they send someone else - dressed in shorts and flip flops arriving and leaving at will, etc.

Some press the issue, wanting to argue it is them who sets the status.  Some get mad for trying to share helpful, and possibly money saving knowledge.  Some complain that "other" payroll software allows tracking people and entities who are not having taxes withheld.

On the other hand, in my youth I worked for cash, even at a job where I got hurt, and accepted the responsibility for my actions.  As I wised up, I realize how foolish it was.  Hopefully the 17 year old learns before I did.

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1 hour ago, Medlin Software said:

Some press the issue, wanting to argue it is them who sets the status.

I've gotten the same arguments, and told them to take it up with the legis-vermin.  I don't make the bleeping rules - but I *have* seen companies put out of business by DOL fines for mis-classifying employees.  (Yeah, I had warned them, numerous times, and in writing with copies kept.)

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Ok busted, the amount on the 1099 for 2015 is $1208.00 and the amount for 2016 is $610.00. Also, I will disagree that amounts in box 7 of the form 1099 MISC automatically constitute SE income based on the two items below. The correct way to do this from the onset was for the preparer to include the amounts on line 7 form 1040 and complete form 8919 which connects with line 58 of form 1040 for amounts of unreported SS and Medicare tax. This still would return an amount due which would only be the 6..25 and 1.45 percent and not the total 15.4. So I still say amend the return to get the excess paid back. Also, the IRS penalized for failure to file and late payment. The company failed to provide the 1099 MISC in a timely manner. Ok, I know that doesn't relieve the client from the responsibility of the tax but hopefully we can get some of this abated.

This is my niece and I had no intentions of charging her. I do agree that sometimes it is better to leave it alone if correcting things cost more. However, we still cannot forget the taxpayer has a responsibility to file an accurate tax return.

 

Box 7. Shows nonemployee compensation. If you are in the trade or business of catching fish, box 7 may show cash you received for the sale of fish. If the amount in this box is SE income, report it on Schedule C or F (Form 1040), and complete Schedule SE (Form 1040). You received this form instead of Form W-2 because the payer did not consider you an employee and did not withhold income tax or social security and Medicare tax. If you believe you are an employee and cannot get the payer to correct this form, report the amount from box 7 on Form 1040, line 7 (or Form 1040NR, line 8). You must also complete Form 8919 and attach it to your return. If you are not an employee but the amount in this box is not SE income (for example, it is income from a sporadic activity or a hobby), report it on Form 1040, line 21 (or Form 1040NR, line 21).

Question: I received a Form 1099-MISC instead of a Form W-2. I'm not self-employed and don't have a business. How do I report this income?

Answer:

If payment for services you provided is listed in box 7 of Form 1099-MISC, Miscellaneous Income, the payer is treating you as a self-employed worker, also referred to as an independent contractor.

  • You don't necessarily have to have a business for payments for your services to be reported on Form 1099-MISC. You may simply perform services as a non-employee.
  • The payer has determined that an employer-employee relationship doesn't exist in your case.

If you weren't an employee of the payer, where you report the income depends on whether your activity is a trade or business. You're in a self-employed trade or business if your primary purpose is to make a profit and your activity is regular and continuous.

  • If you're in a self-employed trade or business, you must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship), or Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship).
  • If you're self-employed, you'll also need to complete Schedule SE (Form 1040), Self-Employment Tax, and pay self-employment tax on your net earnings from self-employment of $400 or more.
  • There's no withholding of tax from self-employment income. As a self-employed individual, you may need to make estimated tax payments during the year to cover your tax liabilities.
  • If you're not an employee of the payer, and you're not in a self-employed trade or business, you should report the income on line 21 of Form 1040, U.S. Individual Income Tax Return, and any expenses on Schedule A (Form 1040), Itemized Deductions
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Terry: You do have the correct plan to eliminate S/E tax by about $140, plus associated penalties/interest. Maybe a total of just under $200 total savings.   The Form 8919 will probably work, and nothing will come of it due to the relatively small amounts involved.  

However, there's also the possibility that the IRS will contact the employer.  Your niece worked there for two years, but can we assume that she isn't working there now and has no intention of doing so in the future?  I ask that because if the IRS does follow up with an inquiry to the employer, that will probably end any future opportunities for her to work there in any capacity.  I've had this sort of situation in the past, and when I posed that question to the taxpayer, they decided they didn't want to burn any bridges just to save a couple of hundred dollars. (minus my fee in those cases, but the decision was based mainly on the desire not to burn any bridges)

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+1 I also had a person bickering about how much taxes they had to pay and this is BS and they are an employee and so on, I said fine, I'll prepare a special form to let the IRS know what's going and you might lose your job.....  The person had no problem paying the tax.

 

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3 hours ago, ILLMAS said:

+1 I also had a person bickering about how much taxes they had to pay and this is BS and they are an employee and so on, I said fine, I'll prepare a special form to let the IRS know what's going and you might lose your job.....  The person had no problem paying the tax.

 

Same people will complain about not being able to live on Social Security benefits.  Oh, is that the Karma Bus coming down the You-Did-It-To-Yourself Road?

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My niece does not work there any longer so there is nothing for her to worry about. My thought were the same as everyone else's that this could indeed open an IRS investigation. I covered that with my niece and family. My niece was given a weekly schedule just as any normal employee would be given. Due to the filings taking place within the last month, I am going to wait a few more weeks before moving forward.

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