@rumorsofsurf wrote:
Thank you @xmasbaby0 & @Opus 17 for those quick and helpful replies! I called the owner of the studio and found out that I got this wrong... they actually switched from 1099-NEC to W-2 (maybe someone else submitted the SS-8... who knows). That will be very helpful going forward for his 2021 taxes, but it feels wrong to have to pay the SE tax for 2020 when this change would seem to confirm that he was an employee all along.
First, let's get to the bottom line. On $800 of 1099-NEC income, he would pay about $120 in SE tax. But if the money was paid as an employee, he would have had $61 in social security and medicare withholding. So the actual monetary difference is less than $60.
If the studio has decided they were wrong and are trying to fix things, what they really should do is cancel the 1099 and issue a corrected W-2 with the correct social security and medicare tax withholding. But since this was for last year, the studio would have to pay both the employer half of social security and medicare tax ($61) and also the employee half ($61), since there is no way to withhold that tax at this point. So while they might have decided to change things going forward, they might not be fully committed to making it right, since that would cost them extra money (or they aren't getting the right advice from their accountant).
Unfortunately, if the studio doesn't re-issue the W-2, the only way for your son to not pay SE tax would be to file the SS-8 with the tax return, and this would likely cause issues for the studio even if they already decided to start doing the right thing. And your son would still pay the $61 of social security and medicare tax that he would have paid if the wages were on a W-2.
If the IRS rules in your son's favor, one of the penalties the studio pays is that they have to pay both halves of social security and medicare, so he would even get the $61 back that he would have paid as an employee. But the studio might decide to discontinue his employment.
Also, be aware that if the circumstances of the position changed, then it might be completely legit for him to have been a contractor at first and an employee later, in which case he might lose his SS-8 case.
So you need to balance all the factors against paying $61 or $122 of tax.
