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I have a tax question. I was audited in 2015. They added…

I have a tax question...
I have a tax question. I was audited in 2015. They added $4,383 in wages I missed. Not a big deal. But they also told me that I was self-employed, and gave me the $1,168 self-employment tax deduction, so that was subtracted, so only I only missed $3,226 in wages, so I owe $487 more in taxes. But, here's the kicker, they are hitting my w a $2,336 Self-employment tax (line 57).They sent me a NOTICE OF DEFICIENCY and said I can challenge by filing a petition with the tax court by April 23, 2018. It seems like they will also consider other information I supply outside of the tax court if I do it soon. My question is, can I refile in some way that I won't have to pay that self-employment tax? I was employed by this company, but they preferred paying me w a 1099 b/c they were cheap. I would definitely not say I was self-employed. Is there something I can do to avoid paying $2,800 for 2015??
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Answered in 7 minutes by:
3/12/2018
emc011075
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3,582
Experience: IRS licensed Enrolled Agent and tax instructor
Verified

Hi. My name is ***** ***** I will be happy to help you.

Self employment tax is social security and Medicare tax for self-employed individuals. When you work for somebody 50% of social security and Medicare tax is taken out of your paycheck and 50% is paid by your employer. If you get 1099Misc no social security or Medicare tax is taken out of your pay or paid by the employer so you pay 100% when you file your taxes. That's the self-employment tax.

You can challenge the IRS decision claiming that you were an employee, include form SS8 with your return and the IRS will determine if you were an employee or contractor. However, since no social security or Medicare tax was withheld from your pay you will still owe what should have been withheld, about 1150 + interest and penalties in addition to regular income tax.

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Customer reply replied 1 month ago
What is the likelyhood of them determining that I am an employee not a contractor, when I was given a 1099 by them? Slim?Seems like it could be worth it if I only pay $1150 instead of $2336

There are certain things the IRS will look at:

Did the employer give a schedule?

Did the employer controlled what, when and how you did your job?

Could you hire an assistant to help you with the job?

Were you paid hourly or project based?

Generally an independent contractor is paid by project, pay his own expenses, control when and how the job is done, set his own schedule, can hire subcontractors and the employer only control the outcome, the complete project.

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Customer reply replied 1 month ago
No, if they IRS contacted them, they would likely say I was a contractor. But none of those questions you asked would be true. They set when I worked, told me what to do, I couldn't hire an assistant, I was paid a daily rate.

It does not matter what the employer says, the company would have to prove that you were not an employee. For instance they would have to come up with a contract and project.

https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation

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In this type of situations a person is considered an employee unless proven otherwise, not the other way around.

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Customer reply replied 1 month ago
I think I likely would be considered an employee, some aspects were contractor, but overall, based on a quick read, I think I was an employee. But what do I need to do and what could be the consequences?

You need to file an appeal, simply stating that you disagree with the IRS decision (there's a box you can check on the notice you received), state your reasons and file ss8. Than let the IRS decide, if you believe you were an employee, than you most likely were.

The employer will be contacted and if proved that he knowingly misclassify his employees as contractors he will be penalized. There are no consequences to except you will probably lose the job if you still work for this employer.

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Customer reply replied 1 month ago
If I worked on-call, whenever they had work, would that be considered possibly contract work?Also, what would the benefit be? You said I would still owe $1,100 probably? Better than $2,300 though

Contractors generally do not work on-call. If the employer requires that you must be available to come to work on a short notice, it would be hard to argue that you were not an employee.

Your benefits would be a lower tax bill. You would still owe the social security and Medicare tax that would had been withheld if you were properly classified as employee.

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Customer reply replied 1 month ago
Well, I was offered work and did not have to take it. Was paid per trip that I led for them. But the rest of the job was like an employee
Customer reply replied 1 month ago
Is there a way to calculate the SS and medicare that would have been withheld? Is the $1100 you mentioned pretty standard for that?

Employee's portion of social security and Medicare tax is 7.65%, half of the self employment tax (15.3%)

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Customer reply replied 1 month ago
Of whatever I made, so instead of 2336 it'd be $1168

That's correct, plus the income tax.

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Customer reply replied 1 month ago
possibly pay 1168 less, which would be paid by my old employer and piss them off a little and maybe they would fight it

Right. Again, it would be up to the employer to come up with something to show that you were not an employee, but a contractor. If he has other people working under similar condition it would be a tough call.

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Customer reply replied 1 month ago
Yeah they def still have people working that way. They do it so they can have 8-12 Guides to possibly call and when they have a family to guide they call one of us and whoever can take it takes it. But there was def specific rules and ways everything had to be done, had to be there on time etc etc

It is up to you what you want do.

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Customer reply replied 1 month ago
the process of filing the appeal is just to draft a letter and form ss8 and just send it to Fresno?

That's right.

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Customer reply replied 1 month ago
Ok I'll look into it. I think I might need to research other cases and what a river guide like what I did is classified in general, just to see if its likely that I would win the case

Sounds like a good plan.

Is there anything else I can help you with today?

emc011075
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3,582
Experience: IRS licensed Enrolled Agent and tax instructor
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emc011075 and 87 other Tax Specialists are ready to help you
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Customer reply replied 1 month ago
i think im good thx!
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