Contributed by: KristineS, FreeTaxUSA Agent, Tax Pro
You were hired on to work for your new employer, congratulations! As far as you knew, you were an employee and every time you were paid, whatever taxes needed to be sent to the IRS were taken care of. You assumed you’d receive a W-2 at the end of year to file on your tax return, just like everyone else.
But instead, in January your employer sent you a Form 1099-NEC. What’s this? As you prepare your tax return in FreeTaxUSA, you just find out this means you’re considered self-employed for tax filing purposes by the IRS and you have to pay a lot of tax you weren’t expecting!
Now what?! You thought you were an employee.
Employee or independent contractor by your employer
Form SS-8 has a big title, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. It’s used by workers who want the IRS to determine if they were considered an employee or an independent contractor, and whether the employer was supposed to withhold tax.
FreeTaxUSA does not support this form.
With Form SS-8, the IRS reviews the degree to which the business that hired you has control vs. your level of independence, in these three categories:
- Behavior – did your company have control of the work you do and how you do your job, or did you?
- Financial – did the company determine your rate of pay and reimbursed expenses, etc., or did you determine those factors?
- Type of Relationship – what type of contract was signed, did it include benefits, paid time-off, a retirement plan, other employee type benefits, etc.?
If you believe you were an employee because your employer had most of the control in these above categories, you may need to file Form SS-8 with the IRS to review your status. If your employer classified you as an independent contractor rather than an employee, they’ll be held liable for the tax due.
The form may be filed by you or the business. The IRS will review the facts and circumstances, determine your status, and notify both you and the employer.
How long does it take for a review
The IRS can take up to six months in the review process to make a determination. That means you might need to file an extension with FreeTaxUSA for your tax return until the IRS notifies you of their decision. If you don’t want to wait, however, and choose to file your return before a final decision, you can always come back and file an amended tax return if necessary.
Other options
You may choose to file Form 8919, Uncollected Social Security and Medicare Tax on Wages, which FreeTaxUSA supports. This form allows you to report your share of the uncollected social security and Medicare taxes due on your wages if you were an employee but were treated as an independent contractor by your employer.
You must file Form 8919 if all of the following apply:
- You performed services for a firm.
- You believe your pay from the firm wasn't for services as an independent contractor.
- The firm didn't withhold your share of Social Security and Medicare taxes from your pay.
- One of the following also applies to you:
- You filed Form SS-8 and received a determination letter stating that you're an employee of the firm.
- You received other correspondence from the IRS that states you're an employee of the firm.
- You filed Form SS-8 with the IRS and haven't received a reply.
- You received a W-2 and a Form 1099-NEC from the firm for 2024. The amount on Form 1099-NEC should've been included as wages on a W-2. (Do not file Form SS-8 if this is the case.)
There are two options to file Form 8919. One, follow this menu path: Income > Uncommon Income > Other Income. Scroll down to Wages not on a W-2 (Form 8919) and follow the prompts. Or two, enter the Form 1099-NEC under Income > 1099-NEC/1099-MISC and indicate that the income should have been reported as wages.
Remember to keep in mind, your taxes on this return will include the parts of social security and Medicare tax on the income that should have been withheld or paid from your paychecks by the employer. The additional tax will show on Schedule 2, line 6 and will flow from there to Form 1040, line 23.