[bella72206]

I changed jobs about 4 months ago and received both a W-2 and a 1099-MISC (nonemployee compensation) from my previous employer. The compensation on my 1099 was for my unused vacation/sick days.

How am I supposed to file this? I am unfamiliar with Schedule C or F forms, etc.

:confused:

[MukatA]

You will report your income and expenses on schedule C or C-EZ (Form 1040). This income is subject to SE tax at 15.3%. Read: Your U.S. Tax Return: Tax Filing by Self Employed Sole Proprietor or Independent Contractor

[bella72206]

Isn't the unused vacation/sick days money I was owed while I was an employee? Shouldn't they have included it into my W-2?

[AuntyCarol]

Dear bella72206,

Do you still need an answer? I believe MukatA is incorrect. If you are still awaiting an answer, please so indicate and I will elaborate. I have been doing small business accounting for 30 years and think I can help.

AuntyCarol (I can answer here or you can contact me directly -- this is my first time here; if direct contact is allowed, my email address is: carol.meixsell @ hotmail.com).

This was from a few days ago, so I wanted to make sure you still needed to know.

Carol

[MukatA]

bella72206:
You must report 1099-misc income on schedule C or C-EZ (Form 1040).
Now about W2 or 1099-misc, some employers do report on 1099-misc. The disadvantage of getting 1099 is that you pay about 7.5% more SE tax. The advantage is that you can deduct your expenses directly on schedule C.

[AuntyCarol]

Since bella72206 is not chiming in here, I guess I will have to speak up. I don't want this to become a volley between myself and MukatA, so if "bella" remains silent, I will not be responding to this question again.

MukatA, I agree that "business income" reported on a 1099 Misc would normally be relegated to a Schedule C under CORRECT circumstances. However, for "bella", I believe it is not as simple as reporting this vacation pay on a Schedule C (profit or loss from business) if "bella" was an employee. Nor is it proper. Why should s/he do this? It is the employer's responsibility to issue a W-2, not leave it up to the employee to use a Schedule C when s/he is NEITHER in business NOR and independent contractor.

Being in business is self-explanatory; being an "independent contractor" has a very strict set of rules via the IRS. I doubt "bella" would qualify for either. Therefore, deducting "business expenses" on a Sch C would also be an error and could come back to "bite" her/him in an examination. The proper place for an employee to deduct business expenses not reimbursed by the employer is on Form 2106, the total of which transfers to Schedule A and is subject to limitations based on AGI (adjusted gross income). If an employee does not have enough of those plus other expenses to exceed the Standard Deduction, the employee expenses cancel out and are not used.

The full 15.3% FICA amount is supposed to be paid on all earnings. But when a person is an employee, not only should s/he NOT be responsible for the 7.65% half-share of FICA (normally 1/2 paid by the employee and 1/2 paid by the employer), depending on how much money was withheld during her/his employment, s/he may incur additional penalties for not having had enough withholding taken out of her/his when the vacation pay (with nothing withheld) is factored in. If the "bella" was an employee, as stated, and not "in business" nor an "independent contractor", filing a Schedule C is improper.

In my opinion, "bella" should contact the employer and require it to revise the reporting to a W-2, with proper withholding and matching payment of the FICA; the employer IS responsible for this matching FICA so why should "bella" pay it when it is wrong to do so? "bella" should report it to the IRS if they refuse to correct this. The IRS does not approve of employers who do this because it is an error. If in doubt, call the IRS at 1-800-829-1040. Be sure to get the name and employee number or office when acting on an answer.

[AuntyCarol]

CORRECTION TO PREVIOUS ANSWER:

2nd paragraph, last sentence, should read:

"... NOR an independent contractor."

[MukatA]

Bella 72206 must report 1099-misc on schedule C or C-EZ. This is what IRS requires.

You can also file Form SS-8 with IRS. Form SS-8. Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Firms and workers file Form SS-8 to request a determination of the status of a worker for purposes of federal employment taxes and income tax withholding.

[AuntyCarol]

This isn't volleyball, this is ping-pong. Back and forth; back and forth. Since there is still no word from "bella", it was my intention not to be involved in this anymore. But, for others who may review this information, I believe it is important to be thorough.

(MukatA, you say): bella 72206 must report 1099-misc on schedule C or C-EZ. This is what IRS requires. (Then, you add): You can also file Form SS-8 with IRS. Form SS-8. Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Firms and workers file Form SS-8 to request a determination of the status of a worker for purposes of federal employment taxes and income tax withholding.

I would agree, IF we hadn't already been told us that the company treated "bella" as an employee by issuing a W-2, making a "determination" both unnecessary and redundant. It was NEVER appropriate for the employer to issue "bella" a 1099 Misc for vacation, sick pay or any other earnings. ALL of these are subject to being reported on a W-2 when the person is an employee.


("bella" says): I changed jobs about 4 months ago and received both a W-2 and a 1099-MISC (nonemployee compensation) from my previous employer (emphasis mine).

So, "bella" WAS an employee, NEVER a non-employee (such as "outside labor"), independent contractor or self-employed. In the long run, it is inevitable that filing Form SS-8, under these circumstances, would only substantiate that "bella's" status is that of an employee and would ultimately require the employer to withdraw the 1099 and furnish "bella" a corrected W-2, with appropriate withholding (if elected) and the employer portion of FICA paid. To do less would be to cheat "bella" out of one of her/his rightful employee benefits. It should be the employer's responsibility to file a corrected quarterly statement (probably using the new 941-X).

Carrying it out a bit further, if "bella" completes and files her/his tax forms before the IRS determination via the SS-8 (likely due to timing), s/he would incur the additional responsibility, confusion and cost of filing an amended return. Note to "bella": if you are going to take MukatA's advice and you don't have a determination by April 15th, I suggest you consider filing an extension on Form 4868 (an automatic extension to Aug. 15th) so you don't have to go through filing an amended return (remember, the extension is an extension of time to file, not an extension of time to pay!).

If necessary, you can also file a request for extension until Oct. 15th using Form 2688 (for this one, you need to state a reason and receive approval, so file early).

These filing delays, however, may also delay any 2009 incentive payment to which you may become entitled based on your 2008 reporting.

At the end of the day, it WAS NEITHER PROPER NOR ACCURATE for "bella's" company to have issued a 1099 Misc to an employee.

MukatA, with all due respect, this problem should be resolved at the company level. The employer should step up to the plate and admit its mistake. The SS-8 should be reserved as a fall-back option if the employer refuses to correctly report "bella" as an employee. But s/he should give it the notice and opportunity to do so. It would be easier for "bella" all ways around.

The responsibility to massage erroneous data in order to correct a company's internal error should never fall on an employee -- neither to fill out additional and improper forms nor to be responsible for the additional self-employment tax, since, in this case, "bella" was always an employee.

This should have been so simple... and it still could be if "bella" would just contact the employer and point out the mistake.

It is obvious that MukatA and I both know what we're talking about. Other than the fact that MukatA is brief and I clearly am not, we primarily disagree on which is the proper way to resolve this. Essentially, MukatA places it on "bella's" shoulders and I think it should land squarely in the employer's lap, since it made the mistake in the first place and it, rather than "bella", should know better.

"bella" must now decide for her/him-self and/or seek advice from a local knowledgeable tax person.

[Ileiem24]

AuntyCarol I really appreciate your answers. You backed up everything I thought. I am in the same situation with my ex employer. I was issued a 1099 for only part of the year and for commissions I earned as an employee (I'm a travel agent) as well as getting my W2. If my employer agrees to correct my W2 what do I have her do with the 1099 she filed? I doubt she'll even correct it. I also left the company in Oct but was paid in Nov for commissions I earned as an employee. Should those be included on the W2 or 1099. Thank you for any help you can provide and for your time.

[akea487]

AuntyCarol thank you so much for your info. I was very lost about the 1099 form and you just answered my question. We need more people like you.

[akea487]

AuntyCarol,
Thank you so much for your info.
I had no clue about the form1099You just answered all the questions I had. We need more people like you. Thanks once again!