Your Tax Question - 046

Dear John, I just received a new job and the company is classifying me as a 1099 employee. They have informed me that I will need to save up 15% of my income in order to pay for the these taxes at the end of the year. What gives? Thx, Charlie

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Thanks for the question Charlie,

Some companies classify their employees as 1099 contractors in order to not have to pay certain employment taxes. The IRS is wise to this and they are more than happy to tell you if you are indeed an employee of the company or a contractor. Simply fill out and submit IRS Form SS-8 for the determination.

If the IRS does indeed inform you that you are a W-2 employee and not a 1099 contractor they will have to change the way they treat your paychecks and you will have to fill out Form 8919 with your 1040 for this year. According to IRS Pub 15 employers are always liable for the employee portion of the taxes and add a (ahem) special bonus to the tax for employers who do it wrong.

I hope this helps.

John

PS. Look at the countdown timer just under the header, time is getting short and I am able to help. This year I am only charging $69.00 for new clients that I service as their tax accountant. Can you say "CHA-CHING!" ?

Your Tax Question - 042

Dear John, I heard that my employer would begin figuring the cost of my insurance premiums so that the IRS can tax me on that benefit as part of my salary. Grrrrr, this just fries me!!! How can the IRS charge my "fringe-benefit" as part of my salary? Frustrated, Sue

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Hi Sue,

Yes, your W-2 form for 2010 is required by The Affordable Care Act (May 23, 2010) to include the amount that your employer paid for your insurance benefits. However, you will not be paying taxes on this amount for it is supposed to be for information only.

The reason that our fringe benefits are presently not taxed as income is because of the grace of Congress. Congress allowed that perk in order to encourage companies to provide health coverage to its employees. If Congress ever wants to change its mind (for whatever reason) the IRS is only ever just one vote from collecting taxes on your fringe benefits. The frustration we feel about this is because we have never thought about insurance premiums that our companies pay for our insurance as taxable income - when it in reality it always has been.

Take care,

John

Your Tax Question - 031

Dear John, This year I received my W-2 and I also received a 1099 from the same job but the 1099 has a different business name on it. My tax software is now requiring me to fill out a Schedule C as part of my taxes. Filing out a Schedule C is requiring me to answer a bunch of questions that I don't have answers for. Can I get around filing out the Schedule C? Thanks, Pat
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Hi Pat,

I don't want to get into a guessing game here so I would suggest that you call your company and find out if there was not a mistake and inquire why this happened. Remember, that the IRS will make a determination about your worker status, simply fill out Form SS-8.

Sorry, there really is no way around the Schedule C-EZ in this case. If there were no you taxes withheld from the 1099 (which I doubt that there were) you will have to pay double on the Social Security and Medicare portions of your wages. This is all covered on the 1040 SE form when you do your taxes. It should not be too difficult just a little extra effort.

I hope this helps.
John

PS. I know of a great tax guy if you need one. ;-) Email me

Your Tax Question - 030

Dear John, I was given stock options as a bonus several years ago, and I was required to "exercise" them in 2009. I have a receipt showing the estimated price at exercise, broker proceeds, grant price/share, taxable amount, tax rate, estimated tax, and net income. At the bottom it says that local payroll will pay the taxes and distribute the remainder as income. It looks like everything was taken care of, and the net proceeds were less than $1000 (woo hoo -- some bonus!). How do I declare this? Is it on the misc income section of the tax return? Thanks, Frank
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Hi Frank,

The simple answer is: "You have a long term gain which gets entered on 1040, Line 13"

The more informative answer:

Employers and banks have until January 31 to have W-2 and 1099 forms mailed. Brokerage houses, on the other hand, have until February 15 to have 1099-B forms mailed to clients -Your exercised stock options fall into this 1099-B category. The information from the 1099-B will be used to fill out 1040 Schedule D which when finished will be used to fill in Line 13 of your Form 1040.

Welcome to the world of stock options!

Good luck,
John

PS. I still have room on my client list if you need me to handle this for you. email me