Because we provide businesses, their owners and employees with IRS representation, we receive questions constantly about how to handle small problems. This one came into our Naperville, IL office.
Changed from W-2 to 1099?
“As an employee, are there any personal legal implications if my employer is classifying me as W-2 for the majority of 2016 and 1099 for a couple of months in that same year (because they have failed to pay payroll taxes for that period)? Am I being put in a situation in which I would need to pursue legal counsel/representation?”
It is highly unlikely that you need to hire an attorney.
The fact that the employer did not withhold taxes for a short period is a manageable situation. The two months of tax withholdings—otherwise paid to the state and federal government—were, instead, the nice little increase you noticed within those months’ paychecks. You received and had access to those funds during that period. Basically you just “borrowed” the funds from the governmental withholdings. If necessary, you can pay them back when you file your tax return. No big problem.
What Should You Do?
While this is no big issue, you do need to speak up for yourself with the employer. This is why.
We assume you earn less than $127,000 a year. An amount of tax equal to 7.65 percent of your pay is “matched” by your employer, and should have been paid to the federal government. That matched amount is the company’s responsibility, not yours. However, if the employer doesn’t pay that 7.65 percent of the 2-months of pay, you will still have to pay it. Therefore, in fairness to you, the employer should reimburse you for the 7.65 percent so that you can pay that part to IRS.
Follow this link to learn more about the audits of employees vs. independent contractors. Or, contact us for specific questions. Tax Law Offices is here to offer legal counsel when you are in need of experienced IRS tax attorneys.