New Form 8919

For as long as I have prepared taxes, I have had clients who received a 1099Misc instead of a W-2. Basically, the employer says that the taxpayer is not a true employee but an independent contractor. It could be the business owner does not want to pay the matching SS and Medicare or actually deal with any withholding so they work out an arrangement with their "employees." Or the business owner does not know the rules and is going with what they see their competitors are doing.  Unfortunately, most of these employees get a surprise a tax time when they see how much they owe the IRS since nothing was withheld. For the most part, they complain but they pay. For those who did not agree to contractor treatment, there was a way to lessen the tax they would be paying.

For years, taxpayers who thought they should have been treated as employees could fill out Form 4137 (Unreported Tips) and just pay their half of the SS and Med. But it was a time consuming mess since you were suppose to mark out the word "tip" and write in "wages" over the form and since the form was changed no e-filing. They would still have to pay taxes on what they earned but they would not owe the employer's half of the SS and Med.
The IRS had just issued a draft of Form 8919-Uncollected Social Security and Medicare on Wages. This form allows a taxpayer who believes they are not a contractor to save themselves the matching SS and Med. Form 8919 itself is fairly simple and just asks for the employer's information, whether a 1099Misc was issued and calculates the employee's SS and Med payment to be transfered to their 1040. What is not simple is the "reason code" section. For each employer a taxpayer lists, they have to identify why they are using the 8919. Have they received a determination letter from the IRS, were they classified as an employee before but now being treated as contract labor, are others doing the same work being treated as employees? But what if the taxpayer does not meet any of the reasons? The final reason is that an SS-8 has been filed with the IRS a but no determination letter received. Bottom line, if a taxpayer wants to use Form 8919 they will have to file a SS-8 and that is no easy matter. It is a 3 page form asking the taxpayer to outline their working relationship with the employer. Who controls what; time, job duties, equipment, training, etc. It will be interesting to see if some taxpayers decide to pay the extra tax to keep from filling out the SS-8.
The need for Form 8919 and SS-8 is to cut the Tax Gap by finding who may be paying employees as contractors so further investigation can targeted where it might do the most good. Hopefully, investigations will also identify those long term non-filers. The taxpayers who want to be paid "under the table" so that they don't have to pay taxes like an employee does. The problem is that someone has to start the process by submitting a SS-8 and that could mean fallout from the employer they turned in or others in that business. They have to be willing to be a whistleblower.

Comments

[Kevin]

I'm in the exact mess with my employer. I've decided to file the SS8 but still confuse of how to pay for the tax in the mean time. In full or just my part as an employee?

[Kevin]

I'm in the exact mess with my employer. I've decided to file the SS8 but still confuse of how to pay for the tax in the mean time. In full or just my part as an employee?

[Trish]

Since you have filed a SS8, I would use form 8919 and pay only your share. Just mark the "reason" section with the code for SS8 submitted but no determination letter received.

[Kevin]

So I should just file my tax as if I have received a w-2 and just put the amount I received on the 1099? Thank you for your help.

[Kay]

Ugh, I wish I'd really thought about the whole tax thing when I accepted the offer to do the work I'm doing. I wish I'd known about 4137 before, in my confusion, going to my employer and asking her if she needed to provide me some kind of tax form. She gave me a 1099-MISC with box 7 filled in, so now I'd have to stir up trouble. I feel stuck between a rock and a hard place. I don't want her to get in trouble, but I don't want to get screwed, either. *sigh*

[Kevin P]

I am a full-time college student and worked during the summer. I received a 1099-misc form for $3492 and owe taxes of $482. I called the company, but the accounting person just says I was considered contract (self-employed). What a joke! I was an office worker with fixed hours, dress code, etc. how do I file or what can I do?

[AK]

http://www.4nannytaxes.com/news/Form_W-2_Not_Received.cfm -- suggests instead of form 8919, do form 4852 with line 7a being the actual wages plus 7.65% to cover what the employer shoud have withheld. This supposedly makes the 8919 not necessary. Does that make sense? I'm trying to figure out how to pay my taxes and not get any penalties.

[LS]

I filed an SS-8 because my employer mistakenly issued a 1099 for my bonus and a W2 for my wages in 2008. My tax software said I should file an SS-8, so I did, not really understanding that it would lead to an investigation. Turns out the IRS is now investigating previous tax years as well (I was a "contractor" for the first half of 2007). Now I believe that I should have been an employee for all of 2007 and want to do the right, legal thing. So I am not withdrawing the SS-8, even though my employer just wants it to go away. Are there any implications on me if I withdraw the form to appease my employer, even though technically I believe I am right that I should have always been considered an employee? I am conflicted because I want to do the right, legal thing, but I also don't want to have a bad relationship with my employer. Any advice would be greatly appreciated! Thanks.

[Tim]

I am in a simlar situation. I was shocked to see the final taxes I would owe when I received a 1099. I was definitely an employee as I have a signed employement contract. So my accountant filed an SS-8 (I didn't rally understand the implications except that he said it would lessen my tax burden). Low and behold my employer calls me a few weeks later saying he got a request for "information" from the IRS that I was "contesting my status as a 1009 employee" and he was pissed talking about possible audits, etc.

Can I retract the SS-8 as my employer will probably look to "punish" me for this thing I didn't even understand what the implications would be to him?

Or what are my options?

Mostly I was VERY surprised when he said he had the forms I filed with the IRS with MY SIGNATURE on them! So much for the IRS not sharing personal info. I feel bad because I did not mean to get teh employer in trouble and feel I was a bit misled by my accountant in filing this form SS-8 - now I wonder if my job is in jeapordy.

[Trish]

I's not the IRS but your accountant who didn't give you a heads up that the IRS has to let the employer know who is accusing him. Now that it has been started, there is little you can do to stop it.

[Miranda]

Hey Trish, thanks for this article. I had a question for you about filing my taxes using the 8919 form. I am in this same mess and I have no problem doing something about it. I just filed the ss-8 and am now trying to file my taxes using the 8919 form. My question is, do I need to include the amount I made on the 1099 in the wages, tips ,etc. column on form 1040(I had another job at the time and got a w2). Or do I leave this earned money out since I am figuring the taxes I owe on it seperately on the 8919 form and entering it later on the 1040?? Does that make sense??

Thanks,
Miranda

[M. Adams]

Question: How does one withdraw an ss8 or stop the process?

We are a small business(focus on small remodel jobs)in the contracting industry with no employees. We have an independent contractor who has been hired off and on to do jobs within the last 8 months. We were very clear that he was an ind. contractor, needed to have his own ins., pay 1/4ly taxes or set aside tax money, etc.

We have always filed and paid our taxes, always filed 1099's on all ind. cont. and never had any employees in 15 years. It is common industry practice to have ind. contractors and we have never had any ind. cont. ? whether they are an employee. We have a contract/waiver from him as an ind. cont. He works specific jobs, hires out for other jobs/people, sets his own times/schedule, works out of his home (we have no office other than our home office), gets no benefits, etc. etc.

We have read the 160 page training manual from IRS about Ind. Cont. vs. employee and meet most areas in all 3 control criterias in order to be an ind. cont. FOR ALL OF THAT....we recognize that none of that really matters because the IRS has a history of being arbitrary in there dealings with most of these cases (I think statistics are that 95% of cases like these they rule as employees because of the crack down and the fines the get paid. We recognize that many are trying to skirt taxes or immigration issues with ind. cont., but this is not the case with us.

OK - question....We spoke with this ind. cont. (with a mediator) as we were unaware that he was going to do this, nor aware that he had any concerns. He is young and this is his first year to file taxes as an ind. He is angry because per his words, we should have "given him more wisdom" about the ind. contractor position and so filed a ss8 at the suggestion of a friend. After going over IRS guidelines he now wants to withdraw the ss8. He has not filed his ss8 form and we have not filed ours. Is there a form he can now use to withdraw the ss8 or how does he rescind the process he has asked to put into place. What will happen if he does not fill out his form and we do not fill out ours?

Thank you!