Sometimes you take a job and it seems like it will be the best gig in the world. The employer tells you that they will pay you weekly, that they won’t take taxes out and that they’ll even give you a 1099 at the end of the year so you can file your taxes. But then you get that 1099, take it to your tax preparer and they tell you that you owe a bunch of money in taxes. Wait? How can this be? Your preparer tells you that your 1099 causes you to be treated as an independent contractor or self-employed for tax purposes. Self-employed? That can’t be right. I worked as an employee for that company for the entire year! Thus, the problem at hand.
In this post on our sister site, we discuss how an employer is supposed to make the proper determination as well as what the tax differences are via being W2 versus 1099. But when they improperly classify you as an independent contractor, it can cause you a whole lot of grief come tax time. So how do you fix it? Well, it’s really a two step process of trying to resolve the situation and filing the tax return.
Obtaining Proper Classification
The first thing you want to do is bring the matter to the attention of your employer. Let them know that you don’t believe that the classification is correct and that you believe you were an employee. This IRS site will give you a little assistance in making that determination. If the employer is uncooperative or flat out refuses that you were an employee, you can ask the IRS to make the determination via filing form Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. The employer will then need to respond to the IRS. Once the IRS rules, they will send a determination to you and the employer. If it is deemed that you were in fact an employee, the employ