Business expenses against a w2 company for independent contractor.

[bobandia]

I have been an independent contractor for many years.  All but one of the companies I have worked for send me a 1099. The one company that sends me a W2, for some reason, is the only company that had work for us last year.  How do I enter milage, meals and hotels?  At the moment I am looking at paying $5,500 in taxes!!  HELP!

[ZoltanB45]

W-2 employees have not been able to deduct non-reimbursed employee expenses on their tax return since 2018. Did you give the employer a w-9 or

w-4? If you gave them a w-9 form they should send you a 1099. 

[Mike9241]

since they issued you a w-2, they're treating you as an employee. no employee expenses like mileage are deductible for the years 2018-2025

your options

see if they'll issue a 1099 and cancel the w-2

or

if you think you;ve been misclassified as an employee when you were an independent contractor file form SS-8 with thee iRS  and file your return as an independent contractor

warning

If the IRS determines that you are an employee, you are
responsible for filing an amended return for any corrections
related to this decision. A determination that a worker is an
employee does not necessarily reduce any current or prior tax
liability. For more information, call 1-800-829-1040.

instructions

https://www.irs.gov/pub/irs-pdf/iss8.pdf 

form

https://www.irs.gov/pub/irs-pdf/fss8.pdf 

[bobandia]

Hi, Mike!  Thanks for replying.  We have been independent contractors for many years.  This company is the only one that changed over from the 1099 to the W2 a few years back.  Last year was dismal for work as all of our work went south except for this one company. I am guessing that I just didn't notice the impact because we had so much work that was 1099.  Looking at a very large tax bill of about $5,500 at the moment.  Any ideas how I can get that lower?  This company is a small family company that we have worked for for many years.  Most of their employees are family so perhaps that is better for them.  They do have many independent contractors all over the USA, but they are also caught up in the W-2 problem.

Bob

[macuser_22]

If you are now a W-2 employee then you are not an independent contractor.    You would no longer have to pay the SE tax since the employer must pay half the social security tax instead of you.   However, it you have work related expenses you can no longer deduct them.

[VolvoGirl]

Were they taking any tax withholding out of your pay/income?  They should have been at least taking FICA (Social Security & Medicare)  out if it.   Does the W2 have amounts in boxes 2, 4 & 6?  Did they ever give you a W4 to fill out?  

Sorry you can't change the past but for the future check with them right away and give them a W4 to take out withholding.   Or you should send in Estimated payments to cover the tax.

[bobandia]

Thanks for answering!

Yes they took federal, state, and medicare taxes taken out.  However, I have hotel, per Diem, milage costs that apparently can no longer be deducted from W-2 wages.  We are talking about nearly $15,000 that shows up in wages. The only box checked is 14 and that says MLS.  Not sure what that is. Is it possible for someone to send the W2 back and get a 1099 issued?  We have done work for this company for many years.  They say that most of their customers require W-2 employees.  We mostly do installations of equipment and such. We work for many companies and this one company is the only one not a 1099.

We also had unemployment including stimulus for about $20,000. Also a taxable1099-R distribution for $7800 and a Roth distribution for $5000 both which we have had for many years. Also, three retirement1099R for about $20,000.

Sadly, all of our usual 1099 companies that we work for have been hit with the pandemic.

I am just trying to find some way to reduce the $5,500 turbo tax is saying we owe.

[bobandia]

I have requested the change from the company.  Not sure that they will or able able to do that. Haven't heard back from them. They said that most of their customers across the country request W-2 employees.  I have been with them many years and I think I remember changing from a 1099 a very long time ago. Last year they were the only company that we worked for that was over the $600.  All other companies are 1099. Plus, there were a lot of expenses that we paid for and were reimbursed for that came as pay.  Taxes were taken out.  We are tying to figure out why the federal tax due is over $5,500... there was unemployment with some federal stimulus money, and that was something new. Very little taxes taken out there.  The normal retirement amounts are in the mix, but nothing new.  We also had that $5000 taken out from the ROTH account, code Q, that has been there many years.  I don't think we owe taxes on that.  There was also a  min distribution from my regular IRA for $7800 with code 7 and x for the ira box.  Then usual mortgage etc.

[JillS56]

Unfortunately determining the reason for the $5,500 of taxes owed is difficult for me to determine.   You have a lot going on in your return and this makes it difficult to determine what is causing the $5,500 of taxes owed.     

What I can say though is the Stimulus money received is not taxable.    The unemployment money is taxable and if sufficient withholdings were not taken out this could cause a tax liability.   Adding unemployment to your overall income could put you in a higher tax bracket thus making the withholding inadequate to meet your tax obligation.  

The Roth IRA code Q should not be taxable and should not be included in your gross taxable income.  

Then add the W-2 income and if there were no federal withholdings or an insufficient amount withheld on the W-2 this would also increase the amount of taxable income.   Then on top of that are your 1099-R and what was withheld for federal taxes the 1099-R.

Often when there are multiple income sources even though there were federal withholdings, there are not sufficient withholdings for the total amount of income and you end up in a higher tax bracket.   

What you might want to do for 2022 is have someone do a tax analysis to make sure that there are sufficient withholding or estimated tax payments made for 2022 and you do not end up in this same situation.