Hello, I have a problem with my summer employers from last summer. They paid me "under the table" for three and half months last summer. This year, 2 days before taxes were due, I received 1099s and a note apologizing for the lateness and the new need to file taxes due to fear of being audited. I was being paid $400 per week even though I worked late nights and overtime frequently. I dont think it's fair that they are suddenly deciding to report my income as freelance contracting even though I never signed anything or agreed to it in the first place. I'm a student who was hired as a "summer intern", all parties agreed that it was supposed to be a learning experience for me, that's why I was paid so little to begin with. I would like to be filed as a W2, but I'm not sure what my rights are. When I brought up the fact that I wasn't able to plan or budget for these unexpected taxes, they asked that I "work off" the taxes. I don't think this is fair. Please let me know what I can do in this situation. Thanks, Alison

Dear Alison,

This is clearly an unfortunate situation! The employer is really entitled and obligated to issue you with a 1099-Misc if they paid you compensation in excess of $600. This is the requirement of the IRS. I am truly surprised that they sent you a 1099-Misc very late into the year, however, they may be subject to fines and penalties for late reporting of the 1096 and 1099-Misc reports.

The fact remains that as far as the IRS is concerned you are indeed required to have reported this income no matter whether or not you received a 1099-Misc. Therefore, regardless of receiving or not receiving the 1099-Misc, you as a taxpayer are obligated and required to report this income as either Miscellaneous Other income subject to Self-employment taxes, or reporting this income on Schedule C.

If you have aleady filed your 2006 tax return, I would strongly suggest that you file an amended tax return and report this additional income. Clearly, a CPA would be most useful in assisting you in this effort and he or she may be able to identify expenses that you may be able to offset against this 1099-Misc income and thus possibly lowering your tax liability.

I would definitely consult a local CPA in your area and have him represent you especially if you owe taxes, the CPA may be able to negogiate a payment plan for you too!

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Did you file your taxes without reporting the $400.00 per week for 3 1/2 months?

If you filed your return withhout reporting your income then you shouldn't be upset that the person you sub-contracted for reported your non-employee compensation. Under the table income should still be reported otherwise you are intentionally defrauding the goverment just like the illegal aliens do.

Dear RazorSlim

Thats exactly what I said recommended and you are absolutely right in your opinion!

Thank you..

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another thing to look at is whether or not you should be 1099'd in the first place. If the employer directed how and when the work was to be conpleted, not just that it gets completed, then he has control over your operation as an employee rather than an independent contractor. Maybe you can get w-2 status. Alot of this 1099ing is going on to avoid having to pay FICA and the IRS is watching it.

it's really a drag when an internship is paid with "non-employee compensation" instead of w-2 wages -- not only is the pay low, the employer also saddles the intern with both halves of fica and medicare come april 15. that's just nasty. the intern has a very weak bargaining position, and is simply being taken advantage of, coming and going.