Taxpayer Got Screwed by Employer

[Oh Baby!]

Taxpayer was receiving a salary and taxes were being withheld. At the end of the year, taxpayer gets a 1099. Apparently, the boss was short on cash and was not remitting the taxes withheld from the employees paycheck. instead, the employer just issued a 1099 for the net amount actually paid to the employee.

What is the employee's recourse?

[TAXBILLY]

This can be a trust fund violation which has criminal consequences.

taxbilly

[kcjenkins]

Basically comes down to whether the employee has any documented 'proof' that the withholding was done. Otherwise it's a "he said, he said" situation. EE claims taxes were withheld, ER says, no, that check was for services, I never withheld because he was not an EE he was an IC. Now, if the client has a pay stub, even one, that actually spells out that there was withholding, he's golden. If he does not, the only thing you can do is use the new 8919 to pay only his half, and to get the employer in trouble with the IRS. Or, if he wants to keep the job anyway, file a C-EZ and let him live with it.

OR, if you have some basis for determining the amount withheld, and you and the client want to fight for the withholding, file a 4852, estimate the withholding, and claim it on the 4852. But be prepared for a fight if you have nothing to base it on but his word.

[JohnH]

The course of action would depend partly upon the current situation.

Is the employer still in business or has he folded? Was this some sort of temporary setback that he reacted to in an inappropriate & illegal manner, or was it a continuous & ongoing practice? How long did the client work for the employer, and how much money is involved? Does he still work for this person? Were there other employees or was this something that only affected one person?

The answers to these and some related questions might have a huge impact on what he does next.

[MN2V]

File SS-8 and let them make the determination of employee/independent contractor...I had one this year and the

employer is paying my fees for amending the returns and over $1000 in fed and state bal due because he came up with "higher" numbers when he sent the W-2. So the SS-8 follow-up must be pretty good.

[Oh Baby!]

Thanks for the advice. I called the IRS and actually got some good advice. They told me, that since the employee does have a pay stub which shows withholdings, the taxpayer should file SS-8, 8919 and 4852. Also to send in the 1099 that was issued so that the IRS will not (mistakenly) come after the taxpayer for ht "unreported" income shown on the 1099MISC.

[kcjenkins]

I hope by 'send it in' you mean report it on the return, then back it out again, by putting it on a C-EZ then putting the same amount as Other Expenses and list as " 1099 received in error, see Form 8919". Do NOT send it off, you need to keep it as proof. Only send copies, with the SS-8.

[jainen]

>>I called the IRS and actually got some good advice<<

Well, I think it was LOUSY advice! Form 8919 would have your client double pay Social Security taxes that have already been withheld, and SS-8 gives the employer an invitation to prove that the 1099 was proper! File with a substitute W-2 ( Form 4852), period. You are probably going to get an IRS letter no matter what you do, but you might reduce that possibility by using Form 8275 to disclose your rejection of the 1099.

Before any of that, try a non-tax approach. If the employer can't make payroll then the job is going to end anyway, so tell your client to pressure the boss into using the correct form. A worker has a very powerful position in anything concerning payroll taxes, because the Labor Board and state EDD are always crouching nearby, ready to pounce. But once the W-2 is in hand, you couldn't care less whether the company actually pays over those withheld taxes or not--the worker still gets credit.

[joelgilb]

From what I can tell from your question the employee is no longer an employee of the company (your quote: "Taxpayer was receiving a salary and taxes were being withheld.") and that there is a pay stub with withholding's ( your quote: "since the employee does have a pay stub which shows withholding's, the taxpayer should file SS-8, 8919 and 4852.")

That being the case you should not entirely follow the IRS advice as your taxpayer would, as Jainen wrote, double pay the withholding's. File the return with the 4852 substitute W-2 and provide a copy of the pay stub as support of withholding's.

[Gail in Virginia]

From what I can tell from your question the employee is no longer an employee of the company (your quote: "Taxpayer was receiving a salary and taxes were being withheld.") and that there is a pay stub with withholding's ( your quote: "since the employee does have a pay stub which shows withholding's, the taxpayer should file SS-8, 8919 and 4852.")

That being the case you should not entirely follow the IRS advice as your taxpayer would, as Jainen wrote, double pay the withholding's. File the return with the 4852 substitute W-2 and provide a copy of the pay stub as support of withholding's.

I agree with Joelgilb and Jainen, but I would also do as KC suggested and report the 1099 as income and back it out to preven a mis-match letter. Good luck!

[lbbwest]

I agree with Joelgilb and Jainen, but I would also do as KC suggested and report the 1099 as income and back it out to preven a mis-match letter. Good luck!

I disagree, if it's wages it would be erroneous on the preparer's part to list it as "non-employee compensation" aka self-employment income on one part of the return, and state that the SAME income is employee income on another part of the return, hello???? to "prevent (sic) a mis-match letter" Once in a while I am on the side of truth, justice, and light, and you can bet your sweet bippy I am screaming as loudly as I can (which not to be immodest is quite loud) Bring on the letters Oh Baby! lbb

[BulldogTom]

I am sitting on the fence here a little bit. I think the SS8 is a good idea because it shows the employee immediately took action when the eroneous form was recieved. Kinda kills any argument that the employee ever agreed to being an IC. I would file the subsitute for w-2 and not include the 1099 anywhere. When the letters come, let it come. Oh, and by the way, your client might make some money by turning this tax cheat in. I forget what the form is, but file it and tattle tale on the employer. It might be enough to pay the bill for your fees for cleaning up this mess.

Tom

Lodi, CA

[kcjenkins]

LBB, I usually agree with you, but not this time. If he follows my advice, he is NOT saying that is is IC income, he is specifically telling the IRS THAT IT WAS REPORTED AS IC INCOME, BUT THAT WAS ERRONEOUS, IT WAS W-2 INCOME. That is the entire message of a Sch C or C-EZ [depending on the amount] that has only the 1099-Misc income and then a line canceling out that same amount, clearly labeled that that is what is being done. Which in my experience, avoids the "mis-match letter" about 85% of the time. While I don't mind dealing with the letters, clients generally freak at ANYTHING from the IRS other than a refund check. If I can avoid them getting one, the client will be happier. After all, a large majority of clients know very little about the tax code, etc. To them, sometimes ANY letter from the IRS about 'an error on your return', means in the client's mind that I made an error. And certainly, the wording of the usual CP2000 feeds into that idea.