Q. I received a 1099-MISC with an amount in box 7 reported as non-employee
compensation. Why am I considered self-employed and do I have to pay my own social
security and Medicare taxes?

A. Since you received Form 1099-MISC, rather than a W-2 form, the payer has considered you
self-employed or an independent contractor and did not withhold social security taxes or
Medicare taxes (and usually no federal or state income tax). You must file Schedule C (Profit or
Loss from Business) or Schedule C-EZ (Net Profit from Business) to determine your net profit or
loss. Expenses associated with this income can be deducted on either of these forms. If your net
earnings from self-employment are $400 or more you will have to use Schedule SE (Self-
employment Tax) to calculate the social security and Medicare taxes you owe on this income.
These forms are filed along with Form 1040.

Q. What is the difference between an employee and an independent contractor?
A. The IRS has several factors that determine if an individual is an employee. Among these are:
that an employee must comply with instructions on when, where and how the work is done; has
hours of work established by the employer; works on the premises of the employer; is paid by the
hour, week or month (as opposed to on commission or by the job); performs exclusively for the
company rather than working for a number of companies at the same time; and has a continuing
relationship with the employer. These factors are listed in full on Form SS-8 (Determination of
Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding).

Q. My employer is issuing me a 1099-MISC but I think I am an employee. What can I do?
A. You should go back to your employer and try to obtain a W-2 form.

Q. What if the employer will not give me a W-2 form?
A. You can file Form SS-8 requesting the IRS to determine if you are an employee and should
have received a W-2. The IRS will send Form SS-8 to your employer who is required to answer a
series of questions relating to your employment status. If you object to your name being
disclosed to the employer on this form, the IRS will not make the determination on Form SS-8 and
you will have to contact the local IRS District Director for more information.

Q. If I complete this form, what do I do next?
A. As an employee, you would have paid half of the employment taxes and your employer would
have paid the other half. You can now pay your share of the Social Security tax and Medicare tax
that would have been taken out if you had received a W-2. Your tax preparer can help you do
this. Send the completed Form SS-8 to the IRS along with your tax return.

Q. What happens if I send in Form SS-8 and the IRS determines that I am an employee?
A. The employer may be liable for all the employment taxes that should have been withheld. This
amount will include both the employer and employee‘s portions with the possible addition of
penalties and interest.

Q. The instructions on the back of Form 1099-MISC for box 7 state ÒIf you are not self-
employed, report this amount (box 7) on Form 1040 on the ‘Wages, salaries, tips, etc.‘ line.
Call the IRS for information about how to report any social security and Medicare taxes.Ó
What will the IRS say if I call?
A. Generally they will advise you to complete Form SS-8 and tell you how to pay your share of
Social Security tax and Medicare tax.

Q. I will have self-employment income this year. How can I make sure that I will not owe a
large amount of money to the IRS when I file my tax return?
A. If you usually get a large refund you may have sufficient tax withheld for this year. Or, if you
have withholding (from W-2s, etc.), make sure you have enough withheld to cover the tax on the
income and the self-employment taxes. If you donÕt, you can submit a W-4 to your employer and
increase the amount of federal (and state) tax withheld. Another option is to make quarterly
estimated tax payments. Your tax preparer can help you do this.

Q. I usually have little or no taxable income, so does that mean I will still owe self-
employment tax?
A. You must pay self-employment tax on your Form 1040, if your net self-employment earnings
are $400 or more, even if you owe no income tax.
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