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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2429
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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i have worked for an employer for over 5 years and he has never

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i have worked for an employer for over 5 years and he has never given me a 1099 nor have a filed one i have been paid in cash. now the edd is audited the employer how much will i have to pay and how can i avoid large penalties

Hello cyndie,


How much were you making each year?

Customer: replied 8 years ago.

between 15k and 25k

Hello again cyndie,


What type of work were you doing?

Customer: replied 8 years ago.
mostly clerical duties, filing, telephones etc



Thank you for using justanswer. You actually have a couple of situations here, so let me address them individually.


the IRS can assess failure to file penalties and they will charge interest on any unpaid tax debt arising from those past year returns. In addition, there is only a 3 year window of opportunity from the due date of your return to still be able to file for and receive any refund that may be due you, so for the returns that are older than the 3 years, even if you had been due a refund, you will no longer receive it.


IRS offers various ways to pay any balance due them from unpaid taxes, such as installment agreements, etc Please see below for more in depth information:


Filing Late and/or Paying Late


You mentioned that your employer paid you in cash and did not withhold any taxes from you pay. Normally, this would mean that you are self employed, and you would need to file all of your income and any expenses you had on Form 1040 (Schedule C)Profit or Loss From Business. This would make you responsible for paying 100% of your social security tax, which is 15.3% of your net income after any expenses, along with your Federal tax liability of course, and state tax if applicable.


However, you mentioned that your employer is currently being audited, and although you didn't mention the reason for the audit, my guess is that the way he/she pays his help may very well be involved. Since employers who issues their employees W2's at the end of the year pay 1/2 of that employee's social security and medicare tax, along with sending the employee's Federal and state withholding to the propery authorities, IRS takes a dim view of business owners who should be paying the people who work for them as employees but choose to pay them as subcontract/self employed help in order to avoid paying their portion of employee taxes.


Whether someone who works for you is self employed or your employee is not a matter of choice, but of law. The IRS has set up the following criteria in order to help determine how a person should be paid:


  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial: Are the business aspects of the worker's job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

If a person falls into the above categories, then they are an employee and must be paid as such. I have linked you to the website for more in depth information: Just on the suface, based on your duties, it sounds like you should probably have been an employee, but you will need to go to the website and determine your status using all of the information provided.


Independent Contractor (Self-Employed) or Employee?


Whether or not you should have received a W2 or a 1099 does not change the fact that you should have filed your returns timely and paid any tax due. if its found that you should have been paid as an employee though, it will lessen the tax liability considerably for the years in question.


I hope this helps.


Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2429
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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