IRS NOTICE FOR WORKERS RECLASSIFIED AS EMPLOYEES
The IRS recently reminded individual
taxpayers what important steps may be necessary to take upon
being informed that their employment status is considered to be
that of an employee, rather than an
independent contractor. Notice 989 is
entitled Commonly Asked
Questions When IRS Determines Your Work Status as “Employee”.
What action a taxpayer may need to take depends on whether an
income tax return was already filed reporting the income at
issue, and if so, how the income was reported.
Common Scenarios
Some of the instructions set forth in the
Notice include the following scenarios:
- If a federal income tax return has not
yet been filed for the year(s) relating to income now
categorized as employee wages, file Form 1040,
U.S. Individual Income
Tax Return, reporting the Form 1099-MISC income reported
by the employer as wages on line 7. Social Security and
Medicare tax (i.e., FICA) must also be computed and paid on
this amount.
- File Form 1040X,
Amended U.S. Individual Income Tax Return, for any affected
years for which a federal income tax return was filed but
the Form 1099-MISC income was not reported, and report that
income as employee wages. FICA tax must also be computed and
paid on the income.
- In situations where a federal income
tax return has already been filed, and Form 1099-MISC income
was reported as employee wages, but no FICA tax was computed
on that income, taxpayers are advised that they must file
Form 1040X to compute the FICA tax due for the affected
years.
- For taxpayers who have already filed a
federal income tax return for the affected years, but
reported their 1099-MISC income as self-employment income,
and not employee wages, Form 1040X must be filed. No
self-employment tax is due; however, the taxpayer’s portion
of FICA tax must be calculated and paid.
2007 Dividing Line for FICA
Note that for tax years prior to 2007, Form 4137,
Social Security and
Medicare Tax on Unreported Tip Income, should be used so
that a taxpayer can properly compute FICA tax and receive the
appropriate credit associated with the income from the Social
Security Administration. For tax years 2007 |