I understand there could be significant tax implications for me regarding the 1099.=======>Correct; the fact that you revcived a 1099 form means you are a self employer;as you can see, The Form 1099-MISC is an IRS tax return document used to report miscellaneous payments made to nonemployee individuals, such as independent contractors, during the calendar year. aslongas the amount on SCh C of 1040 line 29/ 31 is $400 or exceeds $400 you must file Sch C of 1040;Also you, as an Individual, generally have to make estimated tax payments if you expect to owe tax of $1K or more when your return is filed. however, You don?t have to pay estimated tax for the current year if you had no tax liability for the prior year;You were a U.S. citizen or resident for the whole year; Your prior tax year covered a 12-month period
Is the employer correctly classifying the draw amount as 1099 contractor income or should I submit an S88 form to the IRS?=====>it is hard to tell you;I guess If you are an reg W2 employee, then the employer was wrong.you need to contact the ER and ask why he provided you with the 1099 Form you the 1099; basically, If you do not agree with this classification you can speak with your ER to request to be treated as an employee and given a W-2. If your employer refuses you can file Form SS-8 with the IRS. This will request the IRS to look at your employment situation and make an official determination as to whether you are an employee or an independent contractor. The IRS will contact your employer to gather facts from them to make this determination. If you choose to do this you can enter your 1099-Misc on your return and for the reason received select "I got this 1099-Misc for another reason" and then "My employer reported this draw on a 1099-Misc but it should have been reported on a W-2".If you decide not to file Form SS-8 then you will be treated as an independent contractor for tax purposes. This is not always all bad though since you can deduct any unreimbursed out of pocket expenses you may have directly against your income. As an employee you could take a deduction for these expenses but they would be reported as an itemized deduction subject to a 2% of AGI limit. This means that if you use the standard deduction or if your expenses were not more than 2% of your adjust gross income then you would not see a benefit from the deduction. As an independent contractor you can take the expenses even if you use the standard deduction and you do not have a 2% floor on your deduction.