Jan 23, 2008

Misclassified Employee Question

QUESTION: I have a question regarding worker misclassification that I can't find an answer to anywhere on the web including the IRS web site. You have a post regarding the potential problems if an employee is actually an independent contractor. What happens when the situation is reversed? I was misclassified as an IC for about 2 years and my company now openly admits they were in the wrong. To their credit, they are working with me to add 2 years to my retirement and possible give me some back pay for lost overtime and benefits. However, what happens to all of the extra taxes I already paid to the IRS ( i.e. my company's portion in addition to my portion)? The IRS web site states that my company may be forced to pay back taxes for their share even if I already paid them, but is there any way for me to get that money back? It doesn't seem right that the IRS will get paid twice for the same taxes.

Also, in negotiating with my HR Director (who is acting as the middleman with their attorney) they now want me to produce copies of tax returns for those 2 years so "they can compare them to the 1099s they issued". I assume they want to have proof as insurance that I already paid those taxes. Even though I can't come up with a clear reason, I'm not comfortable giving that information to anyone other than my tax preparer or the IRS. It seems to me that there could potentially be some things I would be better off not sharing with my employer. Am I being paranoid in wanting to keep those past returns private?

ANSWER: Thanks for your question. The proper method to handle your problem is for your employer to void the Form 1099's issued to you as independent contractor for the years in question and issue Form W-2's for the same periods. When you receive the Form W-2's, you then can file amended tax returns and claim refunds of the overpaid income taxes for those years. Your company's back taxes payment you refer to represents both your employer's portion and your portion of Social Security and Medicare withholding taxes which they owe due to misclassifying your employment status.
As far as sharing your tax returns with your employer, this is private information and does not have to be shared with them. How you have completed your personal tax returns should be of no concern to them. Sharing tax return information with anyone is totally your decision.

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