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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
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Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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I have been working for and employee for a year. I was hired

Resolved Question:

I have been working for and employee for a year. I was hired as the GM.I have been recieving Tax deducted Payroll since I have started, He has just recently sevt me a 1099 paycheck.
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

Dear Boodemu,

 

Thank you for your question.

 

From the sounds of it, unless you are an owner or partner owner of this business, you are more than likely classified as an employee.

 

Many small businesses, unaware of the full ramifications of what they are doing, believe they can simply, and often arbitrarily, reclassify employees as contracted employees, to save money on payroll taxes.

 

However, this is a serous miscalculation. The IRS is already aware of this practice and abuse. Ever since Microsoft got sued and had to pay out more than 96 million dollars regarding mis-classification of employees, hundreds of millions of awards have been given to employees of all levels of business from the corner restaurant to star bucks and others.

 

Just some of the basket of violations that arise from this practice of misclassification includes:

 

1. Fair Labor Standards Act Violations

2. Equal Pay Act violations because benefits are considered part of compensation, and classifying employees as independent contractors denies them some level of benefits.

3. Violations of the public trust fund laws related to the IRS and SSA, because now the employer is no longer with holding SS And MC taxes or withholding income taxes.

4. Denial of SS and MC benefits by not paying the employer's matching share.

 

Here are some examples:

 

http://ebn.benefitnews.com/asset/article/610731/hidden-pitfalls-worker-misclassification.html?pg

 

 

http://www.waemploymentlawblog.com/blog/employee_misclassification/

 

Now while the IRS has its standards, so do the states. Some states do not allow employees to be classified as 1099 employees, so your contacting the state is a good move.

 

However, a better move is to contact the IRS using the following form: http://www.irs.gov/pub/irs-pdf/fss8.pdf

 

You may also want to sit down with your employer from the perspective of, look boss, I know that payroll is expensive, but I would not want to see the company get in trouble with the IRS and Department of Labor. As GM, I feel I need to help protect the company. Lets look at the IRS regulations together regarding the classification of employees, or at least get an outside opinion form an attorney or the IRS.

 

You can use this information:

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

 

 

 

 

 

 

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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