Thank you for your question.
So if I understand correctly, please confirm.
Your income for 2008 is 24,000 and it is being reported on a 1099.
Now in 2009, he has made you an employee where your pay check will be reported on a form W-2. is this correct?
lets see if this will really be hurtful to you.
Can you tell me the following:
1. your filing status
2. ages of any children
3. any child care expenses/
4. any mortgage interest, pmi insurance, or property tax
Married Filing Separately (divorce pending 05-20-09) w/Injured spouse form for protect.
Children passed ages - 24 and 23
No house, just rent 1450.00/rent plus utilities
Regarding the children,
are they enrolled in college full time?
do they live with you?
Did either of them earn less than 3500 dollars in taxable income last year?
P/T College Only
Yes, my son lived with me the whole year, just moved out!
Yes, my son, most likely earned less than 3500.00 last year, but he files on his own and files Single w/1 (himself)
I tried to post an elaborate response but we accidentaly were posting at the same time and my computer froze up.
lets try again.
The solution to this legally is to convince the employer to file a W-2 for 2008. In so doing he will have to pay your SS and MC as well as his own. He would be entitled to have you reimburse him for the SS and MC that is your share. This is the correct and legal solution because he has misclassified you. HIs misclassification does not change the character of how you were treated as "employee" Misclassification is a serious charge and results in violations not only of the I.R.C. but also the Fair Labor Standards Act (FLSA), and the Equal Pay Act (EPA). Civil penalties for your employer begin at 10,000 dollars per employee.
Please read this link to find out about employee or contractor: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
You can let your employer know that if he is unable to issue an amended 1099 showing zero and issue you a late filed W-2, then you may have to file a form SS8 asking the IRS to help you. Form SS8: http://www.irs.gov/pub/irs-pdf/fss8.pdf
With this solution you would ask the IRS for an extension pending the outcome of the form SS8. An SS8 determining you as an employee will allow you to file taxes an alternate way to give you about a 7.65% relief form taxes. If this is not an option for you, and your employer is not willing to issue a W-2 for 2008, then maybe the employer will be willing to make you whole for the additional taxes you would have to pay roughly equal to the 7.65%. since his payments to make you whole are taxable, then the amount he has to actually compensate you is an additional 77 cents on the dollar. So that if he has to make you whole with 1,000 dollars, that would actually be 1770 dollars. This is because the make whole amount is called a gross up which is taxable, and then the gross up is taxable and so forth. The breakeven point is about 71 to 77 cents on the dollar above the principle amount.
Lets see what we are talking about.
Option One: he issues a W-2 and you reimburse him for your share of SS and MC contributions at 7.65%.
•1. Reimburse: 1836
•2. Income tax: 1856
•3. TOTAL: 3692
OPTION TWO: SS8 Route: Same as Option One.
OPTION Three: Do not contest the 1099 but try to get made whole. This would be treated as Self Employment Income requiring the use of Schedule C. with Schedule C you can deduct certain business expenses to reduce you income to what is called net income. You pay Social Security and Medicare taxes in the form of Self Employment tax (SE tax), using schedule 1040-SE. The estimate I give you does not take into account any business expenses you may have to reduce income. The forms are:
Schedule C: http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
Schedule 1040 SE: http://www.irs.gov/pub/irs-pdf/f1040sse.pdf
The make whole amount would be (4993 - 3692 ) X 1.77 = 2302.77
Now let's talk a moment about your children:
NOTE: If your son earns less than 3500 dollars files without claiming himself, then he will still get all of his income tax withholding back as a refund. He could not claim himself, and allow you to do so, file his return with zero exemptions and still get all of his tax back. AND you could benefit from his deduction on your return by saving 500 dollars in taxes. If you can also claim your daughter, then you get yet another 500 dollars less tax liability.