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    snownurse's Avatar
    snownurse Posts: 1, Reputation: 1
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    #1

    Jan 1, 2006, 02:39 PM
    Reporting sign on bonuses
    :eek: If anyone can help me I would be so happy! Recently, I got a report from the IRS. I suppose I was audited for the year 2003 where I was in school full time working on a master's degree and received a sign on bonus for $30,000 to sign an employee 3-year contract for when I graduate. This was my only reported income. The 1099 (this was what I got I think rather than a W2 but I'm not sure of the difference) reported the bonus in the misc. income box. I had a tax service do my taxes that year and I paid 1700.00 to the IRS after the lifetime learning standard deduction was taken (~1500.00). The only exemption I claimed was for myself. However, the IRS is telling me I owe them $4000.00 more because I am required to pay self employment taxes as well. I don't understand this since I was not working at all.

    I viewed another post on 1099 which stated a 1099 could be issued making you a subcontractor?? I don't understand this since I wasn't working for them at all. Can this be right? It was more of an advance... or insurance that I would work for three years in the group. Is there any way to rectify the situation and avoid this additional (and very high) tax?

    Is this an error on the part of the IRS, or is this monies I overlooked and owe to the government?? Please help! :confused:
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #2

    Jan 2, 2006, 11:20 AM
    SnowNurse:

    If the money was reported on Form 1099-MISC, the IRS would expect you to fill out a Schedule C and Schedule SE to report this income. The tax service who prepared your return should have known that and, since they failed to properly prepare your return, should be on the hook for any penalties and interest.

    I agree that the bonus probably should have been reported as salary on a W-2. Even under those circumstances, however, you would still be on the hook for 7.65% of the $30K ($2,295). Your best bet would be to go to the employer to see if they would be willing to pay their half of the SE tax. However, if they refuse, I do not believe you have any legal basis for forcing them to pay.

    Sorry!
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