Expert: Shirley McAllister, CPP, PHR - 3/2/2009

Question
QUESTION: Hello Shirley:

Interesting situation here, although it seems that it's not all that uncommon (Google is sort of helpful in this regard).  I interned at a hospital over this past summer and fall and was issued a 1099-MISC not too long ago.  The total wages I earned were listed in box 7 "nonemployee compensation."

In starting my taxes (using H&R block TaxCut software) I found that this income can effectively either be considered wages and tips not reported via W-2 (treated as normal wages taxed in your bracket and responsible for paying employees half of social security and medicare) or as self-employment business grosses which will result in a huge increase in tax liability (taxed at the self-employment tax rate which is substantially higher than my tax bracket rate).

It looks like I can file these as wages as tips not reported via W-2 but will need to file 8919 for social security and medicare as well as form SS-8 to determine employee status.  My question to you is what is the IRS likely to consider this work?

Some facts about the work:
*Held a regular schedule in an office provided by employer
*Was responsible for presenting work to superior at regularly held meetings
*Superior had direction over work performed
*Necessary items to conduct work were supplied by employer at no direct charge (IE: no rent paid for desk space or computer usage)
*No financial investment made in any "business"
*Was paid via a bi-weekly check via an invoice submitted with hours worked
*Net pay was based on an hourly rate
*Employment was not guaranteed beyond a fixed term
*Was allowed to work from home but this opportunity is given to full employees as well

Key arguing points as to why I should be considered an employee:
*Job description is generic (IE: I am not paid for a specific task to be performed as an outside contractor would be, ex: Building a building located at site X according to plans Y)
*I (as far as I am aware) can be terminated at any time for any reason with no guarantee of pay afterwards
*Am paid in a similar fashion to an employee -- bi-weekly
*Perform a task similar to an employee
*Do not work (entirely) at my own pace

At any rate please let me know what your experience is on this issue and what you think the IRS is likely to do.  I am confident that I have a good case to be considered as an 'employee' by description.

ANSWER: I agree that you should be classified as an employee, taxes withheld and income reported on a W-2 form. Fill out the SS-8 and send it in to the IRS. I am pretty certain that they will find you an employee. They will than require the company you worked for to go back and pay the social security and medicare employer share in to the IRS. If you are still working there they will require the company to put you on as an employee and not an independent contractor.

Shirley

---------- FOLLOW-UP ----------

QUESTION: I do have one more question.  Will it matter if I was issued a "contract"?  The contract was a single page document which more or less stated I was a temporary employee.  It was not as I am aware any legally binding document (not written in legalese at all -- plain English).  I understand the IRS is more interested in how the work was performed (ie: was a supervisor in control of how you did your work) and how you got paid (ie: contractors get paid the full contract sum unless they fail to deliver something they were responsible for which was named in the contract).

Thanks again.

Answer
Most independent contractors do have a contract. The contract in itself would not exactly place you as an independent contractor as employees can also have employment contracts.

Being a temp employee may make a difference.

Since I do not know how it is set up in the company and with the local agencies I would instruct you to contact your local Department of labor or send it the SS-8 form. The SS-8 form will get you an IRS determination.

Shirley