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1099 to W2; no fica withheld


Possi

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My client didn't file for 2013 and I just received his information to file the tax return.

In this paperwork is a letter from the employer saying that an IRS review demanded that they reclassify my client's income from a 1099MISC to a W2.

The problem for me is that there is nothing withheld for FICA. Of course there is nothing withheld PERIOD, but the FICA is concerning me.

"Statutory employee" is NOT checked, either.

So, what do I do with this?

When the IRS classified him as an employee, did that not demand that the employer pay their portion of FICA and include it on the W2, (also bumping up the box 1 wages by that amount)?

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Absolutely.  The employer, if performing as directed by the IRS, should prepare a W-2c for the year in question, and follow it up with a 941c or 941x.  If the employee's portion of FICA/medicare is non-recoverable, the W-2c should be "grossed up" to include a phantom withheld amount for FICA/medicare.  The employer will have additional payroll tax liability resulting from this, probably at least DOUBLE what he would have paid if properly filed to begin with.

Ever what state he is in also benefits by a probably increase in the SUTA tax - most overwhelmingly assessed against the employer as well.

The employee can prepare an amended 1040-X, claiming the new W-2 as wages, and subtracting of the gross amount on his schedule C.  Expenses related to this amount should be reduced as well, and transferred to schedule A subject to 2%.  (Assuming he included a schedule C on his original return.)  Could result in a refund.

Of course, this predisposes that the IRS was correct in recharacterizing the income to begin with.  They are known to be very aggressive in reclassifying payments to employee-status, and not very correct.  Several years ago there was a list of "20 factors" that they supposedly considered, and then they abandoned the 20 factors because some of them gave powerful support to the other party.  They would rather the decision be more subjective than directed by axioms, so they can be less accountable for their decisions.

 

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Well, there won't be an amended tax return because this is the initial filing.

Since they didn't address FICA in the W2, all zeros, and the W2 is not a "corrected" W2, I see this turning into a rat's nest. I bet the 1099 they issued was never corrected to zero, either. But we shall see when this all shakes out.

They won't recover the FICA, so that's why I thought they er would have grossed up the box 1 wages.

In the meantime, do I file this return as the W2 is written? I don't think there is anything else for me to do.

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2 hours ago, Possi said:

Well, there won't be an amended tax return because this is the initial filing.

Since they didn't address FICA in the W2, all zeros, and the W2 is not a "corrected" W2, I see this turning into a rat's nest. I bet the 1099 they issued was never corrected to zero, either. But we shall see when this all shakes out.

They won't recover the FICA, so that's why I thought they er would have grossed up the box 1 wages.

In the meantime, do I file this return as the W2 is written? I don't think there is anything else for me to do.

My feeling is if the employer initially filed their W-2s with Social Security, then they would have to issue an amended W-2c with the first column showing zeroes.  That is simply to match the 941-X, and new W-3c.

If you have no impact on the employer, then the normal Abby is correct.  Let them clean up their own mess.  File 8919 and be done with it.

I believe the statute of limitations is expired for 2013, unless IRS is bugging him.  If this is his original return, it won't matter - the three year clock doesn't start until the return is filed.  But if he has a refund, I doubt they will send it.

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I agree, and do not want to do a disservice to my client. I'm not trying to do this the easy way, I am trying to do this the right way.

The problem I have is that the income that was originally on a 1099misc is now on a W2, but nothing is withheld. I am assuming the 1099misc has been corrected to zero out the income that was later put on a W2. I believe the employer has no clue how this was supposed to be handled, and slapped out a W2 to satisfy the IRS with no regard for what is correct.

(This is the original filing of the 1040. The IRS has requested the tax return. They will lose their big, fat refund.)

The 8919 covers wages with no FICA or Medicare withholding NOT reported on a W2. That is not the case. This income IS reported on a W2.

And, may I also say that it makes me a little bit sick that a lazy employer has put this burden on me? I am so grateful for all your help. I truly am.

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I had a somewhat similar situation several years ago with a bookkeeper that made a mess in trying to fix a 1099-misc with her incorrect use of the "void" and "corrected" boxes.  In writing to the client, I expressed my concern over whether the revisions were handled properly and described what the correct filing process with the IRS should have been, and asked that the client follow up with the bookkeeper.  Of course, my client and I had already discussed all of this, and this letter to him was written to sound like a general inquiry from me that served as an easy way for him to ask the employer without sounding accusatory by him simply passing it along to the bookkeeper.

Maybe something like that would work in your case too, and it would be a way to also mention other benefits that this company may offer to its employees that your client may have been eligible for such as pension and profit sharing, and expense reimbursement plans.  

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Judy, do you remember how it was finally concluded? Was the W2 changed? The employer was just made to change this to a W2 recently. I have a feeling the box 1 wages will be grossed up for FICA that wasn't withheld. My client wouldn't have the wherewithal to contact the old employer, and wouldn't have a clue what to ask. I suppose I could call the company. I can be southern-sweet and non-threatening.

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Mine issue was with a bookkeeper not correcting a 1099-misc in the proper manner, and client and I weren't sure what had been filed with IRS. It wasn't meant to convert to a W-2, so my issue was different than yours.  I thought my client might actually have three 1099s in the IRS system, but so far I'm not aware of any CP2000.  We kept all the correspondence to and from the bkkpr as proof of what she did wrong, and she has since left the company.  

You could try calling but the company personnel might not talk with you, and with all of the scams and privacy concerns they probably shouldn't anyway. Plus, if the bookkeeper or person processing these forms doesn't know what they are doing, the person could also either turn the conversation confrontational or could end up asking for your direct free advice on the correct handling, and you don't want to be responsible for that instruction to a company that isn't your client.

 

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I agree with cbslee that there isn't harm in filing and is the safe route if you are unsure.  Your client did receive both a 1099 and a W-2, and this would put the IRS on notice in case both are still in the system, and that would lead to the trail of IRS requiring this company to reclassify your client as an employee.

 

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Quote

 

Since this was for 2013 and even though you just received the information; possibly the IRS has already received all and you just need to ask them what they have.  You might consider requesting a: 

Wage and Income Transcript

A wage and income transcript reflects a taxpayer’s income as reported to the IRS. This type of transcript is available for the prior 10 years, but the most recent year’s information may not be complete until July.

A wage and income transcript is where all of a taxpayer’s information concerning W-2s, 1099s, 1098s, K-1s, and 5498s is shown, and can be helpful for verifying employment or filing an extended tax return. These

transcripts can be longer than 100 pages, but tax professionals may request a one-page summary version.

      HOPE THIS HELPS   and yes, the things we learn from this forum are FANTASTIC !   As are those answering questions and giving ideas.    THANKS !!

 

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If you're going to tackle a 2013 income tax return, I would suggest that you obtain a transcript from the IRS first.  That way you know exactly what is recorded for that SSN.  Then, you can take those numbers and prepare the return.  If you see that BOTH the 1099-MISC and the W-2 were reported, complete Form 4852 with a complete description of the problem, and send it attached to the 1040.  Good luck!

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