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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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A tax litigator suggested that I have my employer amend my

Resolved Question:

A tax litigator suggested that I have my employer amend my W2's for 2005, 2006, 2007 as "statutory employee" (showing in Publication 17), so I can fully write-off my receipts instead of being held to the 2% rule. I was 1099 in Colorado and Washington and had to be W2'd in Virginia (even though I had to pay all the expenses for the office and every facet of the business). I looked at the definition of "statutory employee" in Publication 17 and wonder if I qualify. I was a residential loan Manager in Williamsburg, VA and HAD to be W2'd. However, I was already set up as 1099 in Washington (home office) and in Colorado. I noticed that the publication mentioned "full-time life insurance salespersons, certain agent or commission drivers, traveling salespersons, and certain homeworkers. Is this just a broad range and example or is it ONLY these people that qualify?
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.

Hello mandes,

 

Yes, before you can be classified as a statutory employee, the IRS requires that your job falls into one of the following four categories:

 

Driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission.

 

A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.

 

An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done.

 

A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. The work performed for you must be the salesperson's principal business activity.

 

It sounds like what you have described your job to be that the only classification that might apply to you is if you do your work from an office in your home.

 

I am not quite certain why you are being required to be paid via a W-2 form in the state of Virginia, when your other locations paid you on a 1099 form. If you were treated before as an independent contractor in the states of Colorado and Washington, then why would they now be changing your classification based on the fact that you are now in Virginia? Did they explain why this was necessary?

 

 

 

Customer: replied 5 years ago.

When I went to the Commissioners "mandatory Meeting" in Richmond, VA in 2005, he said that all loan officers and residential loan persons had to be W2. My office in Virginia was set up like a franchise where I paid ALL expenses such as; rent, phones, equipment, supplies, furniture, gas, advertising, etc. The reps were paid a portion of my commission and split with me.

 

I also had a home office to work out of at night. I processed loans until Midnight many nights, so had a room set up in my house for late nights. I had a desk, computer, phone, fax, file cabinets, etc.

 

The auditor wants to split up my receipts by the 1099 portion and the w2 portion. As you know, the w2 will limit me to the 2% rule and will cost me thousands.

 

I thought I could use the "statutory employee" status because the "intent" of the Virginia office was to be set up like a franchise. The only reason I had to be W2 was for the State of Virginia for Fica employee reasons.

 

Expert:  Merlo replied 5 years ago.

Hello again mandes,

 

Well I wish I had an easy answer or way for you to accomplish what you are trying to do, and I certainly understand your reasoning behind wanting to make the change.

 

But unfortunately, unless your job falls into one of the 4 categories listed earlier, then you do not meet the IRS definition of a statutory employee, although if you can convince your employer that your job does fall in to one of those categories, then you may have a chance of having them amend those forms. But again, there is just no clear cut answer here since the job description you gave does not easily lend itself to one of the 4 categories listed by the IRS.

 

The only thing that I would say at this point is that at least by now being a W-2 employee, you have avoided having to pay the full share of social security and medicare taxes which you were subject to paying as a 1099 employee. So at least you have picked up some savings in that respect.

 

 

Customer: replied 5 years ago.
Merlo, when I checked the ruling about "statutory employee" it didn't really state that the above were the only types of positions. I pulled up from the IRS publication, "Who is a statutory employee?" It stated, "Some workers are deemed to be employees by statute. ....In addition, while not as prevalent in an exempt organization, the following workers are also statutory employees: Then it lists, the "in addition" that you mentioned above. With the words, "some worker" and "in addition", I am to believe maybe any employee that is really set up as an "owner" but W2 for State fica purposes, can be a "statutory employee". It doesn't appear the law is that precise and leaves room for discussion.
Expert:  Merlo replied 5 years ago.

Hello again mandes,

 

I am not sure which section of the IRS website where you viewed the information, and they may have used that wording, but I am giving you a link below to one section of the IRS which states:

 

If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute (statutory employees) for certain employment tax purposes if they fall within any one of the following four categories and meet the three conditions described under Social Security and Medicare taxes, below.

 

The website then goes on to list the 4 categories mentioned earlier. But this wording clearly indicates that you may be treated as a statutory employee if you fall in one of these categories, so I do not see any room there for jobs that fall outside of those 4 categories.

 

Here is the link.

 

http://www.irs.gov/businesses/small/article/0,,id=179118,00.html

 

I am also giving you a link to the actual code IRC section 3121 which outlines these definitions. Refer to paragraph d of this code.

 

http://www.fourmilab.ch/ustax/www/t26-C-21-C-3121.html

 

 

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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