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Old 05-04-2014, 06:26 PM
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Severance - 1099-MISC

My husband received a severance check, it was a lump sum, employer did not pay any portion of taxes. He was sent a Form 1099-MISC by his employer. The IRS is now stating my husband could be liable for self-employment tax on it, on top of the Federal tax he paid, could this be true?



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Old 05-04-2014, 10:55 PM
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Quote:
Originally Posted by kkam10 View Post
My husband received a severance check, it was a lump sum, employer did not pay any portion of taxes. He was sent a Form 1099-MISC by his employer. The IRS is now stating my husband could be liable for self-employment tax on it, on top of the Federal tax he paid, could this be true?
His ER had to report on W-2 and withhold taxes from his severance pay.
ERs preferred to report on 1099-misc since they do not have to pay/match 7.65% of FICA taxes for EEs. Your husband should talk to his ER as to why they did not treat it as a regular EE’s wages. Also 1099-misc does not make HUGE difference; your husband end up paying about 7.5% more as compared to W-2 income; as your husband is a reg W2 EE and however he received his severance check 1099MISC, so he needs to pay self employment tax, 15.3%, not 7.65% but he can deduct 50% of the SECA taxes on 1040 line 27 by reporting the amount on Sch SE as there is no business related expenses ocured.Your husband doensn;t need to file Sch C.



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Old 05-04-2014, 11:00 PM
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Originally Posted by Wnhough View Post
His ER had to report on W-2 and withhold taxes from his severance pay.
ERs preferred to report on 1099-misc since they do not have to pay/match 7.65% of FICA taxes for EEs. Your husband should talk to his ER as to why they did not treat it as a regular EE’s wages. Also 1099-misc does not make HUGE difference; your husband end up paying about 7.5% more as compared to W-2 income; as your husband is a reg W2 EE and however he received his severance check 1099MISC, so he needs to pay self employment tax, 15.3%, not 7.65% but he can deduct 50% of the SECA taxes on 1040 line 27 by reporting the amount on Sch SE as there is no business related expenses ocured.Your husband doensn;t need to file Sch C.
Wow - thank you for your response! Appreciate it.



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