In 2007 the company I worked for was sold. We were given very generous bonuses with no taxes taken out. In Jan of 08, we were given 1099's for the bonuses and a check from the company to cover their portion of the taxes. I filed my taxes along with the 1099. Two other employees have received bills from the IRS for the "non-employee compensation". These were bonuses given to us the day the sale was completed. Can this be protested and won with the IRS? Thank you for your help.

You will report your income (bonuses) and expenses on schedule C or C-EZ (Form 1040). Then you put net income (or loss) on line 12 of Form 1040. This income is subject to SE tax at 15.3% (this is shown on line 57 of Form 1040). Half of SE tax is deductible on line 27 of Form 1040. Read: Your U.S. Tax Return: Tax Filing by Self Employed Sole Proprietor or Independent Contractor (http://taxipay.blogspot.com/2008/04/tax-filing-by-self-employed-sole.html)

Can an employer give an independent contractor a bonus?

Technically, no. An independent contractor is NOT an employee, so any extra income given to the contractor is not, by definition, a bonus, but rather extra payment for services rendered.