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I received a 1099-misc from a past employer but I was under the impression I was an employee and not an independent contractor especially after I told my employer I did not want to get a 1099 at the end of the year and they agreed and started taking taxes out of each check afterwards. Also I had federal, state, social security, and medicare w/h from 7 out of 10 of my checks.

I contacted the accountant and he told me since the 1099 shows my federal and state w/h(he added my Federal and FICA W/H together) that it didn't make a difference, but it makes a huge difference, a $200 refund difference...He also has the incorrect federal w/h amount.

I am not sure where to go from here. He told me that it wasn't practical to file a w-2 because I only had 4 checks with everything withheld(not true it was 7) I had a total of $535 in "contract labor" (only 3 checks weren't taxed at all) not $3,185 like hes claiming on the 1099.

I honestly don't think hes wanting to do things the right way. The accountant is wanting write off my 1099, get the company to refund me the taxes I paid out of my checks and so he can file for a refund on what the company paid in.

Why won't he just give me a w-2 like he was supposed to from the beginning and then a 1099 for the un-taxed wages? I would much rather not double pay on my taxes. The SE tax on the 1099 given would be $450 vs the $75 that I really owe.

I also have all my check stubs showing exactly how much was taken out of each check..I file my own taxes every year I don't want to have to go to H&R block and pay to have this mess sorted. Thanks.

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    The "accountant" you mentioned: that's your past employer's accountant, not yours, right? – Ben Miller Jan 30 '17 at 6:02
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    @BenMiller - my interpretation is "accountant" refers to the employer's accountant. The last paragraph seems to confirm that. – TTT Jan 30 '17 at 16:45
  • @TTT I think you are right. I misread the question at first, that's why I asked. (+1 on your answer.) – Ben Miller Jan 30 '17 at 16:46
  • As for why, its simple. as a w2 employee, the employer has to match in taxes what you paid in federal withholding. As a 1099, you're self employed, so you pay both the employer and employee withholding out of the money you were given. May need to contact an employment lawyer; if they are mis-categorizing you, they can get into a lot of trouble. – Andy Jan 31 '17 at 1:57
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I agree that you should have received both a 1099 and a W2 from your employer. They may be reluctant to do that because some people believe that could trigger an IRS audit. The reason is that independent contractor vs employee is supposed to be defined by your job function, not by your choice. If you were a contractor and then switched to be an employee without changing your job description, then the IRS could claim that you should have always been an employee the entire time, and so should every one of the other contractors that work for that company with a similar job function. It's a hornet's nest that the employer may not want to poke.

But that's not your problem; what should you do about it? When you say "he added my Federal and FICA W/H together", do you mean that total appears in box 4 of your 1099? If so, it sounds like the employer is expecting you to re-pay the employer portion of FICA. Can you ask them if they actually paid it? If they did, then I don't see them having a choice but to issue a W2, since the IRS would be expecting one. If they didn't pay your FICA, then the amount this will cost you is 7.65% of what would have been your W2 wages. IMHO it would be reasonable for you to request that they send you a check for that extra amount. Note: even though that amount will be less than $600 and you won't receive a 1099 in 2017 for it, legally you'll still have to pay tax on that amount so I think a good estimate would be to call it 10% instead. Depending on your personality and your relationship with the employer, if they choose not to "make you whole", you could threaten to fill out form SS-8.

Additional Info: (Thank you Bobson for bringing this up.) The situation you find yourself in is similar to the concept of "Contract-to-Hire". You start off as a contractor, and later convert to an employee. In order to avoid issuing a 1099 and W2 to the same person in a single tax year, companies typically utilize one of the following strategies:

  1. Bring the contractor in through another company (temp or staffing agency). This is commonly called corp-to-corp (C2C) and is the most common form of contract to hire arrangements, since it is legally very cut and dry. (Assuming the temp agency does their job, has the proper insurance, and pays the worker as a W2 employee, withholds the proper taxes, etc.)
  2. If the independent contractor would be issued a 1099 directly but is converted to W2 in the middle of the year, some companies will simply make the W2 status retroactive since the start of the contract (or the beginning of the year, whichever is later). This benefits the employee because no self employment tax will be due for the time they were a contractor for that tax year.
  3. Run the "contractor" through payroll right from the beginning (as a W2 employee). Companies typically don't like to do this because then they have to offer benefits too. It's possible that a small business that doesn't offer benefits would do this, and even though the person is referred to as a "contractor", they really are an employee from a tax perspective.

Your particular situation is closest to situation 2, but the reverse. Instead of retroactively calling you a W2 employee the entire time, your employer is cheating and attempting to classify you as a 1099 contractor the entire time. This is frowned upon by the IRS, as well as the employee since as you discovered it costs you more money in the form of employer FICA. From your description it sounds like your employer was trying to do you a favor and didn't quite follow through with it. What they should have done was never switch you to W2 in the first place (if you really should have been a contractor), or they should have done the conversion properly without stringing you along.

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    Wouldn't a normal contract-to-hire position get both forms without changing job description? Or are those type of "contract" not on a 1099? – Bobson Jan 30 '17 at 20:31
  • @Bobson - fantastic question! I've updated my answer to address it. Thanks. – TTT Jan 30 '17 at 21:21
  • @Bobson C2H if it's not through companies is probably wrong to separately issue 1099 and W2. Employee status is not based on the term of work but based on the working conditions and other things. Most Contract to Hire positions should be W2 employees of someone. – Joe Jan 30 '17 at 22:13

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