We have all had this client: He comes in with a 1099-MISC for non-employee compensation, but when we ask him about his business and the related expenses, he tells us, “I don’t have a business. I just work there.”
We know what’s going on, and we know the right thing to do. Our client is being short-changed by a boss who wants to get out of paying the employer’s share of the Social Security and Medicare taxes that are due on the client’s wages. The way for our client to get a fair shake is to file Form 8919 (and probably Form SS-8).
But then we look at the bottom of the Form 8919 instructions and see that ominous-looking exclamation mark with the word “CAUTION” printed under it. And right next to that, we see where it says that, if our client files this form, the IRS may contact the employer for more information. And it is not very hard to imagine the unscrupulous employer’s reaction to finding out our client blew the whistle on him.
So, how do we report the income on our client’s return? Line 21 may look tempting, but, aside from being technically the wrong place to report it, the income will not be treated as earned income for EIC and Child Tax Credit purposes. Another option is to report it as self-employment income, but that would cause the client to pay hundreds of dollars in tax that are not really his responsibility. Filing Form 8919 may be the correct thing to do, but, unless our client has already left that job, it just might get him fired. And even bad jobs are not easy to come by lately. What should we advise the client to do?
More often than not, once we have talked all of this over with the client, he’ll decide that, come to think of it, he really is an independent contractor after all. And I suppose we have to believe him, don’t we?
When Form 8919 first came out in 2007, it sounded like a great idea. And it is, in theory. But in practice, it seems to have relatively little use.
Except as an ethical dilemma.
Bob Nolan is an Enrolled Agent and an ASTQB–certified software tester, and is licensed as a Certified Public Accountant in the states of Illinois and North Carolina—but he is not quite as boring as that makes him sound. He has experience in public accounting and used to have his own small tax-preparation business. Previously a Drake Software customer, Bob has been a Tax Analyst in Drake’s federal tax development group since 2006. When he is not working, Bob enjoys travel, science fiction, old movies, and spending time with his very patient wife and his three children, who have the good fortune to take after their mom.