W2 vs 1099 income?

[motoboy5207]

My wife was hired on last year at an Independent investment firm as a W2 employee but the Advisor was not paying any of the employee taxes and she was paying 100% of them.  She wants to switch to a 1099 Employee since shes already paying 100% of the employee taxes. Her salary is $60,000.  From what I understand She's really only making approx. $55,000 since she has been paying all herself? If her employer was covering his half  on a W2 employee she would actually be making more annually? And if she went to a 1099 she basically cut her pay down annually?

Thank you 

Mark

[Hal_Al]

She has to discuss this with her employer.  There is nothing she can do at tax filing time to make that change on her own initiative.

That said, something isn't right.  It may just be that she needs to wait to if she gets a W-2 or a 1099-NEC.  She simply can't be a W-2 employee AND be paying the employer share of FICA tax.  Her pay stubs should be showing 6.2% social and 1.45% Medicare withholding.  If none is being shown, then she is all but certain to be an independent contractor.  A contractor should expect to be paid ~7% (.9235 x 7.65%) more to compensate for taxes. 

[Opus 17]

You can't just flip flop between employee and contractor.  Which she is depends on the nature of the working relationship between her and the company, and you can't legally switch from one to the other unless those working relationships also change.  See here for more.

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-o...

As noted, she can't be an employee and also be paying both halves of social security and medicare, something doesn't sound right.

Also as noted, for the same amount of work, an independent contractor needs to be paid more to make up for the employment taxes, as well as all the other benefits they forego (like possibly health insurance, paid vacation, unemployment insurance, workers compensation, 401(k) match, etc.).  At my particular employer, the cost of these benefits is an extra 40% on top of the gross salary.    Getting paid an extra 7% to cover the self-employment taxes is the minimum gross-up I would consider.  

[motoboy5207]

Ok thank you

Yeah we know something is off for sure. She was supposed to be making $60,000 gross as a salary. She works for just a single financial advisdor at an independent office. I don't think he was too savy on the pay and when the accountant got her paid he didn't realize that he was to cover half of the social security and medicare taxes. I think this guys accountant leaves alot to be desired.

So to make up for it the accountant started pulling all of it from my wifes pay. He only wanted a total of $60,000 being paid out annually. So now it looks like a $55,000 annual pay. She is supposed to be buying his portfolio in a year or so and would be required to switch to a 1099 then.We know that if she switches to a 1099 she would be paying all of social security and medicare anyways. Is there any benefit to her deduction wise to be paying all of it?

Thanks

[Opus 17]

So she wants the job badly enough to continue working for an employer and an accountant who are violating the law and cheating her?

For a $60,000 salary and assume monthly paychecks, her gross is $5000 per month.  The employer must withhold $382.50 in social security and medicare, then the employer remits to the IRS on form 941, $765, representing the employee share and the employer share.  If the employer is deducting the entire $765 that's illegal.  It can be corrected by filing an amended form 941, and the deadline to correct it would be January 31, 2021 since that's when the W-2 is issued.

If it is not corrected, your wife can file a complaint with the state labor department for unfair wage practices, and possibly file a form SS-8 with the IRS.

If jobs are so scarce that your wife would prefer to continue working for someone who steals from her and doesn't care to fix it, I'm not sure I can offer any further intelligent advice.  The minimum fair compensation, if she went to independent contractor status, would be $5382.50 per month, so that after your wife pays the SE tax, she nets the same $4617 that was the original bargain.  If she agrees to work for a gross of $5000 per month, that's a pay cut from what was negotiated.

Making her independent would place all the compliance burden on her head, which might be good since she would not be subject to her employer's screw-ups, but it will cost you (and not just money.  Your wife will have to spend considerable amount of time educating herself on taxes and record keeping for self-employed persons.). You would definitely want a written employment contract.

The plus side of being an independent contractor is that the employer can set performance goals but can't require that she work certain hours or a certain schedule -- if she meets those goals, she fulfills the contract.  And if she meets the goals in less than 40 hours a week, she is free to take on additional clients in her own name.  If the employer requires her to work a certain number of hours per week, or at a certain location, and forbids her from working for other clients, then she really is an employee and she should not tolerate any shenanigans.

[motoboy5207]

Thank you sir

You basically comfirmed all that I thought was so. I am with you that what he is doing is wrong and needs to be addressed and corrected. She does have a contract with him and since we just got this mess kind of figured out, we are deciding what to do next. All of which you have suggested. I should mention that she's only been employed there for 5 months so this hasn't been going on too long but long enough for us to figure something wasn't right. I do thank you for your help.