1099 or W-2?

[speedmeister]

I worked for a company as an employee for 3 years--2017 through 2019.  The division of the company I worked for was sold at the close of business 12/31/19.  I had an employment contract, received benefits, had taxes withheld, etc.  My employment contract included a bonus that was to be paid out in December of 2019.  My former employer delayed paying the bonus until early January of 2020, stating that they did not have all the data they needed to calculate the bonus payment until after the previous year closed out.  In order to receive the bonus payment, the company required me to complete a W-9, stating that they were required to do that since I was no longer employed by them.  I protested, stating that the bonus was paid solely for work I completed as an employee, and also noting that I did not have any agreement to perform work for them in 2020, so they were really not paying me for any services I provided in 2020.

My former employer disagreed, and stated if I wanted the bonus, I had to complete the W-9.  I wanted the bonus, so I completed the form and received a check for the entire amount with no withholding.  As expected, today I received a 1099-NEC from my former employer.  

Is this truly non-employee income since I was an employee of the company at the time the work was performed?  Or, is my former employer simply trying to avoid payroll taxes, 401k matches, etc?  If it's not non-employee income, should I file an 8919 and SS-8?  Thanks to the community for any help!

[DavidD66]

Your former employer improperly treated you as an independent contractor.  You would be well within your rights to file Form 8919.  It sounds like you are already aware of this, but according to the IRS:

Workers who believe an employer improperly classified them as independent contractors can use Form 8919 to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation.

You may want to contact your former employer one more time and let them know that if they don't correct their error, you intend to report them and file Form 8919.

[speedmeister]

Thank you, David.  I let them know shortly after the company sold that I thought I was being improperly classified, and received a shoulder shrug.  

If you don't mind a second part, what do I do about my taxes now.  If I file an 8919, and the IRS rules against me, will I owe a penalty and interest on the self employment portion of my taxes?  

[LenaH]

An easier way to report your 1099-NEC is to report it on a Schedule C and pay the self-employment tax on the bonus. Adding self-employment tax will end up being your portion of Social Security and Medicare on this income that was supposed to be withheld, as if it was paid as a paycheck rather than a lump sum. If you do it this way, you will pay the taxes you would have been required to pay and the IRS cannot come back later on and assess you the tax, plus penalties. 

The IRS classifies bonuses as supplemental wages, along with severance pay, taxable fringe benefits, vacation pay, back pay, and overtime. Supplemental pay is anything other than your regular pay.

Per the IRS, supplemental wages are subject to Social Security and Medicare taxes.  The employer's failure to pay the FUTA tax on these wages will be their fault and not your responsibility. 

To add your 1099-NEC and add it to a Schedule C:

1. Open your return.
2. Search for 1099-NEC with the magnifying glass tool at the top of the page.
3. Click on the Jump to 1099-NEC link at the top of the search results. 
4. Click Add a 1099-NEC.
5. Enter the amounts as shown on your form. 
6. On the page titled Guess what? You can deduct expenses for the example work choose Yes, I have expenses to deduct.
7. On the page titled Self-employed 1099-NEC Income, you can add a new business on this screen.

To confirm your 1099-NEC was linked to your Schedule C, please follow the instructions below:

1. Open your return.
2. Search for Sch C with the magnifying glass tool at the top of the page.
3. Click on the Jump to Sch C link at the top of the search results. 
4. On the page titled Your 2020 self-employed work summary, you should see your 1099-NEC listed with the corresponding amount. 
5. Click review next to the income from your 1099-NEC. 
6. Follow the on-screen instructions on the following pages. 

@speedmeister