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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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I have $24,000.00 about to be on a 1099 that my boss paid out

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I have $24,000.00 about to be on a 1099 that my boss paid out last year on my services. Since then, he has now made me an employee so I will have tax deductions. As an Office Administrator, I do not have any tax deductions like he thinks I will have to offset the taxes. About how much taxes will I be looking like I have to pay, and should I start sending a few hundred each month to the IRS before April 09 hits me bigtime! Not sure how to handle the big taxes I will owe now, what is your suggestion? Thank you.
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

Dear Sassy,

 

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?

Customer: replied 5 years ago.
Yes, he has employed compupay since turning me into an employee, he only started this since about Nov 08, not very much taxes has been taken out to offset this big 1099 I will be receiving.
Expert:  Ed Johnson replied 5 years ago.

Dear Sassy,

 

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

 

Customer: replied 5 years ago.

Thank you.

Married Filing Separately (divorce pending 05-20-09) w/Injured spouse form for protect.

Children passed ages - 24 and 23

No childcare

No house, just rent 1450.00/rent plus utilities

 

thanks, again.

 

 

Expert:  Ed Johnson replied 5 years ago.

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?

Customer: replied 5 years ago.

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)

 

Thanks,

Customer: replied 5 years ago.
pending answer, thank you.
Expert:  Ed Johnson replied 5 years ago.

Dear Sassy,

 

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

 

  • 1. Income TAX 1602
  • 2. SS and MC tax (SE TAX): 3391
  • 3. TOTAL 4993

 

The make whole amount would be (4993 - 3692 ) X 1.77 = 2302.77

 

Now let's talk a moment about your children:

 

  • 1. Filing status. If you and your husband are separated by a legal separation agreement or court order, or have lived apart for more than half the year, you can consider yourself single for purposes of claiming head of household, provided you can claim at least one child as a dependent. Under special rules for divorced and separated parents, the one with whom the children lived the majority of the year is entitled to make that deduction. But you do have to maintain a home for them.
  • 2. Your children do not have to live with you in order to claim them as dependents, even if you can not claim head of household as long as the following is true.
  • a. The child does not claim themselves on their own return.
  • b. The child cannot be claimed on another persons return and does not file a joint return.
  • c. They earn less than 3500 dollars a year.
  • d. They are citizens or legal permanent residents of the U.S. Canada, or Mexico.
  • e. Did not provide more than half of their own income. If they stayed with you during 2008 and earned so l little, likely when you figure cost of housing, food and transportation alone, he would not have provided more than half of his own income.

 

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.

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 7 other Tax Specialists are ready to help you

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