Frequently Asked Questions - The 8919 Process.
Options for taxpayers when they receive a 1099 instead of a W-2.
Disclaimer: The following information is presented as just that general information. For specific tax advice refer
to the IRS for federal matters (1-800-829-1040, the business and specialty tax line at 1-800-829-4933 or irs.
gov) or for state matters the Minnesota Department of Revenue (651-296-3781 or www.taxes.state.mn.us).
Two documents taxpayers receive when working are the W-2 Wage and Tax Statement and the 1099-MISC
Miscellaneous Income. The W-2 is issued when you work for a company or individual as an employee. Employers,
on behalf of their employees, withhold federal and state income tax (usually) and pay into the social security and
Medicare funds (mandatory). Additionally, employees may be eligible for unemployment insurance and worker’s
compensation by the payments their employers make into those funds. An independent contractor or sole
proprietor provides an independent service or runs his/her own business and, therefore, is not an employee where
all those taxes and funds are paid. The self-employed need to pay their own taxes and make their own contributions
to social security and Medicare (through the self-employment tax). Worker’s compensation and unemployment
insurance for the self-employed is another tricky issue for another day.
Some workers are quite surprised when they receive a 1099 instead of a W-2. Others just don’t agree they
should be treated as independent contractors instead of employees.
IRS procedures allow taxpayers to contest their worker classification. In other words, if a worker receives a
1099MISC (1099 Miscellaneous Income) but the worker feels that he/she should have been treated as an
employee and received a W-2 there are ways to challenge that.
Question: Why would someone want to challenge this? What are the advantages?
Answer: From a taxpayer point of view the taxes are considerably less. Working for someone, a W-2 job, the
worker pays one-half of Social Security and Medicare taxes and his or her employer pays the other half. If you
are self-employed you pay 100% of those taxes (typically 15.3% of the net wages). Usually the result is double
the tax. So if the worker feels that he or she has been misclassified, takes the right steps and presents a good
argument the taxes are cut in half from the self-employment tax rate. For example, taxpayer Julia, much to her
surprise, receives a 1099 from her employer. She was in a clear situation where she felt she was an employee
and wants to challenge this. If her return is done categorizing her as self-employed based on $12,000 listed in
box 7 of the 1099MISC the result calculates to approximately $1680 in self-employment taxes. Doing her return
and having her pay only the employee equivalent of Social Security and Medicare taxes would be roughly half of
that. A considerable difference.
Q: What are the advantages to employer to pay someone as an independent contractor?
A: A company or individual hiring an independent contractor typically just pays the independent contractor fee
or compensation and that may be all. There may be other costs (some arrangement regarding worker’s
compensation, reimbursement for job related expenses, etc), but the situation is far more streamlined than
hiring a W-2 employee.
Q: What are the disadvantages for people challenging their worker classification?
A: The employer may choose not to contract or hire this worker again. In affect, the worker loses the job. Key
questions for people challenging their worker classification are, “Do you realize you may lose this job?” “Is this
something you can afford to do?” Employers have their say in this process too and which will be explained later.
Q: How does this work? What are the steps?
A: On form 1040, page 2, the taxpayer would list in the section called “Other Taxes” on the line “Unreported
social security and Medicare tax from Form  4137  8919” the amount from the 1099MISC or the total in
cash paid. The earnings are considered wages and would show up on the wages line, page 1 of the 1040. The
money would be taxed at the wage rate (not the self-employment rate) and social security/Medicare taxes
would be calculated at the same employee rate. One more thing to do.
Q: What is the next step after completing the return?
A: After the return is completed, and sent off like any other return, the taxpayer must take an additional step
and that is to fill out and send to the IRS the form SS-8, Determination of Worker Status …. On the SS-8 the
taxpayer describes his/her job and presents the argument why he/she should be considered an employee. The
SS-8 is three-page form with relatively straightforward language. The taxpayer presents his/her side of the
argument as to why he/she should be considered an employee. Key discussion points are behavioural and
financial control, and relationship of the parties. Behavioural control- Did the taxpayer have a say in how,
when, and where to do the work? Financial Control - Did the taxpayer have an investment in the work (other
than receiving a salary)? Relationship - Did the taxpayer have benefits like insurance, pensions, or paid leave?
Another key question - Did the taxpayer do this type of work for anyone else? Taxpayers need to have
supporting documents, like a 1099, and have the employer’s name, address, telephone number, and employer
identification number if possible, for the SS-8.
Employers will also fill out an SS-8 presenting their side of the argument. Therefore, it is important that
taxpayers know this. Determination of worker status will be decided by the IRS looking at both sides of the
argument. Determination may take up to 180 days or more, but in the meantime the tax return will be
processed as completed by the taxpayer. Adjustments may be made later depending on the decision.
Q: When doing this is taxpayer allowed to deduct expenses on Schedule C?
A: No. The point being argued is that the taxpayer is an employee not self-employed. Self-employed individuals
fill out a profit or loss statement (Schedule C) from their business or service and deduct expenses there.
Unreimbursed employee expenses are another thing and would need to be itemized on Schedule A like other
taxpayers do and are subject to the same rules that apply to individual taxpayers.
To recap all of this:
o A taxpayer decides he/she should be considered an employee for a job done and wants to present
his/her argument for this. He/She knows that the employer will also have a chance to present their side
of the story
o To list the income from this position the tax preparer goes to page two of the 1040, line indicating
“Unreported social security and Medicare tax …” and links to form 8919 Uncollected Social Security and
Medicare Tax on Wages. If there is a 1099 the preparer would link to that via the wage column on the
8919. For reason code list letter G in column (c) and column (d) can be left blank if this is a situation
where the taxpayer is contesting worker classification.
o Finish processing the tax return
o It will be necessary for the taxpayer to fill out the SS-8 too but the SS-8 is not to be sent in with the tax
return. It may be done later but it should be done as soon as possible as a determination may take up to
180 days or more.
o One more thing. This 8919 is the same procedure used when doing tax returns for newspaper carriers
delivering the StarTribune and Pioneer Press. You would link to the 1099 from the 8919 to input that
data. On the 8919 itself you list reason code B “section 530 employee” in column C and leave column D
blank. The StarTribune and Pioneer Press contract with subcontractors so it may not be apparent that
the client delivered these newspapers if you don’t ask them. In this type of situation with newspaper
carriers for the StarTribune and PioneerPress we do not fill out the SS-8. The decision has been made
that they qualify for Section 530 relief (permitting them to issue their carriers 1099’s but allowing
these carriers to file a tax return and pay the employee part of social security and Medicare tax).