So that's generally what I am talking about when you check the box for "this 1099 should have been included in my W-2." there's no doubt you should be classified as an employee and not a contractor, and as an employee, your employer is supposed to withhold 7.65% medicare and social security tax and pay a matching amount. (15.6% total)
("Employment taxes" refers to social security and medicare tax, or FICA and OASDI, it might be abbreviated as. Normally, the employee pays half and the employer pays half. Under very rare circumstances, you can make the employer pay the full 15% but I'm not sure you are in that kind of situation. "Employment taxes" does not refer to income tax, you always owe your own income tax. The issue here is whether you want to pay 7.65% employment tax or pay 15% employment tax and not make waves.)
By reporting the commission on a 1099, the employer is trying to make you responsible for the full 15.6% employment taxes, which is called self-employment tax and is calculated using schedule C and schedule SE for self-employed, independent contractors, sole proprietorships, and so on. (It nets out to slightly less than 15% after a partial deduction).
Since you have a W-2 for your regular wages, you don't need to file a form SS-8 for an official determination of whether you are an independent contractor or an employee -- that issue is already settled. What you need to do is to decide as a practical matter whether you want to pay 7.65% (by checking the box for "this money should have been included in my W-2") or 15% (for reporting self-employment income.) I can't tell you when or if the IRS will get around to making noise for a small timer who makes this kind of mistake. Certainly an IRS letter is no joke, and the employer needs to get some education so they can handle this correctly for 2018. But it's a fairly small time error. The question for you is do you want to make waves and pay the correct tax, or keep quiet for the sake of your job and pay a higher incorrect tax.
(By the way, your co-worker is responsible for paying tax on their full income even if they don't get a 1099. It's not 2018 wages and the employer should not issue a 1099-MISC next year for money paid this year. That's only digging a deeper hole and your employer really needs to get some professional tax advice. Your co-worker can report the income without a 1099 as "other income" and there is also a procedure to get this included on their substitute W-2 form so they also only pay 7.65% social security tax instead of 15% SE tax.)
