That's pretty shady of your employer. It sounds to me, the way you describe it, like he's trying to get out of paying his share by dumping it all on you. I've never heard of income from a 40-hour office job being classified as a misc income. Obviously, he's trying to pinch his pennies and dump it all on you. I wouldn't want to work for an employer like that. Very shady. I would take Major's advice and look into getting reclassified. My band pays me in this fashion so I get a 1099-MISC Income form every year. It sucks having to pay, but I usually deduct enough to break even. You'd be surprised how much you can deduct as a freelance musician.
My commission is 2% of the company's total gross income, plus I earn $10/hour and a $25 a week for gas since the company relocated mid last year.
When you deducted the expenses as a freelance musician, did you have to provide all the receipts of these expenses?
Then yeah, based on what you described your job duties as, I don't see how you could be properly classified as a contract worker. If a substantial portion of your income was commission based, it would be possible, but that doesn't seem to be the case. I'm not sure what the best route to go is (maybe talk to the IRS), but you definitely want to get this resolved if you plan to stay there, or you're going to repeat this problem next April.
The form doesn't require that you provide them. I kept them like crazy when I first started, just in case, but never actually sent them in. After a few years of not getting audited or questioned in any way, I became more lax about keeping them. I really should do a better job like I did 6 years ago when I was very anal about it. I have a buddy who is VERY liberal about what he deducts. He made about $25K in 2007 (as a musician) and claims that he can come up with enough deductions to actually get a refund. That's a little over the top for me. He claims that he's done it for years and never sent in a single receipt and that he's never been audited. I'm too scared to list that many deductions without anything to back it up.
You have to list the 1099-MISC as business income, then deduct the milelage using a 2106, employee travel expenses. In order to keep records you are asked to keep a log of the days, miles driven, and (I think) locations visited. Technically you could make all of this up if the IRS came and asked for records, though I'm not suggesting it. I believe you do deduct the other expenses if the care is solely used for business travel. Also, you're not supposed to deduct the travel from home to work, but the travel from work to other places. Pugs
Major, thank you very much for your efforts in helping me with this issue, as am thankful for everyone else that has participated in this forum. I will give the IRS a call immediately, from their website, it seems they're assistant help lines are available until 10pm tonight. If through my correspondence with an IRS person and if they declare that I am an employee and not a contractor, then I will proceed to follow with the 8919 form suggested by you. Can you guide me with what else is to be done following the 8919? My employer has suggested that I write off as much as I can to reduce the total amount that I need to pay to the IRS, even if it means lying. I do not want to resort to that, I am still young, and I don't need this right now. But, first things first, I will consolidate all the useful information here, and see what the IRS people can help me with. I really want to confront this ass and ask him why he's laboring all the SS and Medicare taxes on me, ima_drummer is correct, from the time I've grown to know him, this dude is not sincere in the least, and is a very deviant character.
I had a similar situation as a student. I worked over the summer for a guy doing regular office hours and he sent me a 1099. I had up until then only gotten W-2's and filed the 1040EZ and I was panicking about it. At the public library they had a tax advice from accountants and the person I talked to took the 1099 and filed it just like a W-2, calculated what taxes I owed using the regular tax tables and told me to send it in along with a check for how much I owed. Now this was for only about $10K on the 1099 so I'm not sure if there is a cutoff or even if what the accountant did was legal and she just figured that the chances of an audit were so low that as long as I filed a return the IRS wouldn't care. My advice to you is to use Turbotax. You can do it online at www.turbotax.com For $22K of earnings you could probably just use the Turbotax basic which will cost you about $24. If you haven't been keeping track of work related expenses you still could get some deductions from things like your own health care, any savings you have made, and payments for school. If you have had no withholding you probably won't get a deduction but you probably won't be paying the full amount that the IRS says you owe. If you can't pay whatever is owned contact the IRS to arrange a payment plan and if you do keep the same job plan on setting up estimated tax payments each quarter to do your own withholding. GOOD LUCK!
So basically you sent the IRS a check for 11.47% Federal taxes, 6.2% for Social Security, and 1.45% for Medicare from the $10K you earned, and that was it? Was the amount above or below of what the IRS actually wanted? If I was to calculate what I needed to pay just like a W-2 then I should have paid $4354.96, the statement sent to me by the IRS is over $6400. If I send them the paperwork for the $4354.96, they'll just take it and won't ask anymore questions? Also, will the IRS record the phone conversation if I call them for questions? Obviously, I will be providing some very specific information when I call. If I claim I'm not a contractor to the IRS, but turns around and fakes a bunch of deductions just to pay a lesser amount, will the IRS know?
I use my personal car for business purposes and have been able to deduct mileage, maintenance and depreciation for my car. I keep track of my business mileage and using that there is a formula for determing deductions.
Honestly, I'm not really sure what the next step would be. If you get re-classified as a W2 employee, then the deduction stuff wouldn't be relevant anymore - that's just for the independent contractors. If you end up staying as a contractor, you'd just have to think of everything you can legitimately argue as an expense that you incurred because you were employed. It doesn't sound like you have many, but whatever you do have will be deducted from that $22,777. If you're netting about 28% in taxes, then you'd save about $0.28 for each dollar of deductible expenses you have (though I think gas may work slightly differently - I've never done it though). Yeah, the problem you face is that he can also let you go for whatever reason. So part of how you handle it may depend on how badly you need the job, etc. It's not a good position to be in.
Jesus, man. I would quit this job like yesterday. That's a HUGE red flag. The only reason he's telling you this is to get you out of his hair and to keep you from questioning your classification, which could get HIM in trouble. He obviously doesn't care about you as an employee. He just wants you to go away. This is very reassuring. I wonder if the IRS even bothers questioning a 1099 for 10K. Maybe that's why I've never been audited? I use Turbo Tax as well. All you do is answer questions and it fills out the forms for you. Very easy. Tax Act is another good one.
If I was to be reclassified, does that apply for the past year? Will the IRS change the amount due? Will they contact my employer and ask him to cough up the SS and Medicare taxes(that'd so sweet)? I don't see myself with this company in the immediate future, I'm resigned to the fact that whatever I do will consequently burn these bridges, and I don't care, as long as I'm not paying for someone else's taxes under a false premise.
From my understanding, the IRS does a mix of targeted and random audits. The targeted ones are probably on the ones with a lot of deductions or high incomes but low taxes owed. The random ones would be purely arbitrary. Here's some stats on the total audits (from the 1990s - not sure how accurate it is now): http://www.wwwebtax.com/audits/audit_avoiding.htm It seems, in total, about 1% of returns get audited.
I've never gone through the process, but I imagine they would reclassify your 2008 and then they would deal with the employer directly to address the mistake/fraud/etc. But that's just a guess based on what seems logical to me (the IRS isn't always logical though).
This was years ago and I don't remember what the exact amount was but I recall it being a little less than what the IRS had listed. Even on the 1040EZ there are deductions you can take and at that time I was earning little enough to qualify for the Earned Income Credit. I don't know if they will just accept you paying what you calculate on treating the 1099-MISC as a W-2. My guess was that the accountant I talked to figured the amount I was filing was low enough that it wouldn't trigger an audit and/or there is a cutoff amount for doing something like that. My guess is if you do that you are probably gambling that the IRS isn't going to look that closely at a $22K return. I would definately check with a few others though besides me as I am not a tax professional, an accountant and while I run a small business my partner handles most of the financials and I count on Turbotax to fill out my own returns. I don't know if the IRS records phone conversations but I wouldn't try to fake deductions.
The drawback is this is a really bad economy so until you know you can find another job it might not be worth it to quit. As Major noted a lot of this is a crap shoot for lower incomes. I've never been audited but I have had the IRS contact me regarding a mistaken return. The most that happened there was that I paid a small penalty and the difference in the return. With my situation on the 1099 then as far as I know it was all legal and I have never knowingly falsified anything on a return. While the chances are low for an audit I don't think its worth it to gamble on it.
Very interesting, thanks. Oh, believe me....I'm too chicken to mess with the IRS. I was really just referring to some old returns that I no longer have receipts for. I wouldn't want them to come back at me for a return from 3 or 4 years ago. No way I could find any of those receipts.
There are different statutes of limitations. For outright fraud, there is no limitation. However, for regular mistakes, the IRS can only audit for 3 years. In the case of a big mistake (defined as 25% or more of your income), I believe they can audit up to 6 years. So if you're not trying to commit fraud, you should be OK after 3 years in terms of worrying whether the IRS might want to go back and look at those returns.
