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Old 10-15-2015, 06:10 PM
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1099 Work But Uses W2

I have been self employed for many years with 100% of my work from my home office. Most (but not all) of my work passes through a contracting firm that acts as a "middle-man" between me and the final client. I invoice this contractor, and the contractor invoices the client plus a markup on my labor.

This contracting company has recently stated that all contractors (including me) will have to be W2 employees instead of 1099. Due to my significant home office expenses and tax deductions, I needed to be listed as a Statutory Employee on the W2. At first they agreed that I could (and should) be listed as a Statutory employee, but today they have stated that they are not able to list me as a statutory employee.

QUESTION 1: What would this do to my ability to claim significant home office expenses on my Schedule C? My expenses would exceed the remaining 1099 income entered on Schedule C. (My deductions are much higher than a typical home office.)

QUESTION 2: Is there some reason they can't list me as Statutory, or did they just say this to avoid complications? They hired an outside firm to handle their payroll (previously I was paid by in-house invoicing).



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Old 10-15-2015, 07:44 PM
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I have been self employed for many years with 100% of my work from my home office. Most (but not all) of my work passes through a contracting firm that acts as a "middle-man" between me and the final client. I invoice this contractor, and the contractor invoices the client plus a markup on my labor.

This contracting company has recently stated that all contractors (including me) will have to be W2 employees instead of 1099. Due to my significant home office expenses and tax deductions, I needed to be listed as a Statutory Employee on the W2. At first they agreed that I could (and should) be listed as a Statutory employee, but today they have stated that they are not able to list me as a statutory employee.========>>The issue NEEDS to decided between you and the ER.the IRS has no authority to decide it. There are guidelines available when a question arises regarding whether or not a relationship is ER-EE or when two entities are contracting independently. On a federal level, the IRS has also set out a test to help determine whether or not an individual is an employee or an independent contractor . plz visit the web site here for more info.https://www.irs.gov/Businesses/Small...tory-Employees


UNLESS he classifies you as a statutory EE, you CAN NOT claim biz expenses on your Sch C. however, aslongas the ER classifies you as a reg EE, then you must itemize your deductions on SCh A subject to 2% of your AGI. So unless you itemize deductions, you can not claim your biz expenses. If you are a a reg EE, then, your ER MUST match 50% of the FICA taxes for you since your, as a reg EE, earnings are subject to FICA taxes withholding so your ER MUST match 50% of the FICA taxes for you. Some ERs do not want to pay the employer's portion of two of these taxes:a 6.2 percent Social Security tax; and a 1.45 percent Medicare tax.So some ERs classify a reg EE as a self employer by issuing a 1099 instead of a W2; this is illegitimate.


Statutory Employees in general have Two Options for Reporting Income;If the statutory EE has no expenses to deduct, income is reported directly on Form 1040. If the statutory EE has expenses to deduct, Sch C may be completed to report income and related expenses.Net income from Sch C is carried to the front of Form 1040.



QUESTION 1: What would this do to my ability to claim significant home office expenses on my Schedule C? My expenses would exceed the remaining 1099 income entered on Schedule C. (My deductions are much higher than a typical home office.)=============>As mentioned above; you need to itemize deductions on your Sch A as a reg EE UNLESS you are treated as a statutory EE. If you take the standard deduction, you will not be able to deduct employee business expenses

QUESTION 2: Is there some reason they can't list me as Statutory, or did they just say this to avoid complications? They hired an outside firm to handle their payroll (previously I was paid by in-house invoicing).=========>>Yo need to contact hem for sure ; nobody knows why they hired an outside firm to handle their payroll; In my opinion, you need to be treated as a statutory EE since you are a homeworkerperforming work on material or goods furnished by the employer.



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Old 10-15-2015, 08:56 PM
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The main problem is that I am clearly a 1099 contractor by all tests and measure. The company is operating on fear because they got slapped (fined) for treating some other employee as 1099 that should have been classified as W2.

It doesn't hurt them to treat me as W2, but it sure as heck hurts me. There are penalties for miscategorizing a W2 employee as a 1099, but what about the reverse? Is there some way I can educate someone operating on fear that what they want to do is wrong?



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Old 10-19-2015, 06:58 PM
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I just got another email from this company and I'm not sure they are pulling my leg or not. It contained the following (My emphasis added):
Quote:
We have worked with several S-Corps and LLC’s and they have all transitioned to W2’s under this new mandated initiative.
Is there any new IRS mandate for everyone to use W2? This doesn't make sense to me, but before I question her on this statement, I want to verify that there is or is not any recent IRS mandates.



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Old 10-19-2015, 11:03 PM
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Originally Posted by powertool View Post
Is there any new IRS mandate for everyone to use W2? This doesn't make sense to me, but before I question her on this statement, I want to verify that there is or is not any recent IRS mandates.
No; as I said, the IRS has no any authority to mandate all EEs to use W2 as a reg W2 EE instead of a statutory EE.The issue NEEDS to decided between you and the ER.the IRS has no authority to decide it.The determination can be complex and depends on the facts and circumstances of each case.

I know that your employer is not an ER who misclassifies workers and don't pay their fair share of employment taxes. However, you are a statutory employee ASLONGAS you work at home on materials and goods supplied by the employer, which materials must be returned to the employer or to someone the employer designates, in conformance with employer specifications for the work, then you may claim your expenes on your Sch C of 1040 NOT on Form 2106 or 2106-EZ and on SCh A subject to 2% of your AGI as a regular EE. i guess you may explain the ER that you are a statutory EE and need to claim your biz related expenses on Sch C of 1040 as you work at home on materials and goods supplied by the employer, which materials must be returned to the employer or to someone the employer designates



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