1099 NEC help... is this right?

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1099 NEC help... is this right?

Post by uclalee »

In 2021 I worked a side gig that initially paid me in January as a W2 employee. I was paid $11,200 that month and paid $2739.11 in taxes ($1531.75 federal, 694.40 OASDI, 162.40 Medicare, 343.84 state, 6.72 EE SUI).

The decision was made after that point that I should be paid as a non-employee contractor. So for the rest of the year I earned $53,401 and paid no taxes.

Today I received a 1099 NEC that shows
Box 1: $61,861.89
Everything else blank

It looks like they just subtracted my paid taxes from my total earnings for the year ($11,200+$53,401).

Is this correct, or should I be receiving both a W2 and a 1099? Am I overpaying on taxes if they report it this way?
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Re: 1099 NEC help... is this right?

Post by jebmke »

I am not a payroll tax expert but this doesn't seem right. If you were W2 they should issue a W2 for that period and the 1099 for the rest.
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Re: 1099 NEC help... is this right?

Post by n0v0w3ls »

That definitely isn't right. I don't know how the switch from employee to contractor would normally be handled, but I would think they need to terminate your employment, then set you up as a contractor under a 1099. If they paid you via their payroll system and withheld taxes they need to report the taxes withheld. Deducting it from the gross is wrong and actually costs you money.

On the 1099 they're reducing your gross pay income by the tax withholding leaving you with gross of 62,000. At 10% your tax bill would be 6,200 you would need to pay out of pocket.

The correct scenario would have you report gross income of 65,000. At 10% your tax bill would be 6,500 less the 2,700 already withheld while you were an employee would require you to pay an additional 3,800 out of pocket.

Also by overstating your 1099 income, you would be paying FICA tax on most of the employee income a second time.

At this point I would be a little concerned whether or not they included what you had withheld when they made their payroll tax deposits. Seems like they don't know what they heck they're doing. Are you possibly being misclassified as an independent contractor when you are actually an employee?
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Re: 1099 NEC help... is this right?

Post by secondcor521 »

You should be receiving a W-2 for that portion of your work, and you should want to so you can take credit for any federal or state withholding that was withheld from your paychecks and should be reflected on your W-2.

Contact your employer and request that they provide you with a W-2 for your W-2 work and a 1099-NEC for your contractor work. If you don't get satisfaction from them, there is an IRS procedure to follow, but I'm not sure offhand what that is.

If you feel like they're misclassifying you as a contractor, there is also a procedure for that.
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Re: 1099 NEC help... is this right?

Post by fyre4ce »

That's not right. Even in the very unusual (and probably illegal?) hypothetical of you working as a W-2 employee for a short while, having taxes withheld through payroll, and then agreeing with your employer to retroactively reclassify you as a 1099 before any of their payroll tax forms are filed, then your employer should return your taxes AND the their (employer's) portion of payroll taxes to you, because you'll end up paying those on your Schedule C. But it seems this would only work in practice if your employer hadn't sent in any of the payroll taxes, which (I learned recently) needs to happen twice a week if the business is making annual tax payments in excess of $50,000, so very unlikely. Agree with other posters who say first try to work it out with the employer, and if that fails, with the IRS.
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