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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10124
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I recieved a lock in letter from the IRS. My employer

Customer Question

I recieved a lock in letter from the IRS. My employer initially offered me the option to either file as a W4 employee or 1099 .Even though me and my employer recieved a lock in letter. Can my employer still allow me to switch from a W4 employee to a 1099 employee?? Thanks.
Submitted: 3 months ago.
Category: Tax
Expert:  Lane replied 3 months ago.

Hi,

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there is nothing Specifically prohibiting ... although th IRS could easily say that if nothing changed about the way you work, that the companmy is miscategorizing ... see this:https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee and hit the company for evading payroll taxes.

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The other path they can take is to require what's called "backup withholding," for independent contractors.(28%).

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So sorry.

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Lane

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I hold a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

Customer: replied 3 months ago.
basically you are trying to say if I attempt to switch from a W4 status to A 1099 that may result in even more problems? I have a tax id number as well will this make a difference? I am trying to offset half of my earnings being taken from me on payday. Am I in trouble?
Expert:  Lane replied 3 months ago.

I wouldn't say you're in trouble ... just being forced to pay the taxes in ( through the lock-in)

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If no-one's audited and you DO pay what you owe as an independent contractor (quarterly estimated payments and BOTH halves of the Social Security and medicare - your employer is payin half of it and withholding the other half right now), AND pay whatever is outstanding that caused this ... then everything may go smoothly as a contractor.

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But again, (and I have to let you know the worst case too) IRS can simply start requiring the employer to do what's called backupwithholding (essentially a lock-in for independent contractors)

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OR if they take the more aggressive path, becasue there are VERY stiff penaltirs to employers for not paying those payroll taxxes (FICA) that could get the employer in LOTS of trouble for re-classifying you as an independent contractor (when nothing changed about how you work) and bee seen as tax evation on THEIR part.

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