Fighting Abusive Employers

Today TaxMama® hears from Nick in the TaxQuips Forum who is angry. “This year I saw some disturbing instances where independent contractors were issued 1099-MISC for higher amounts than they were actually paid. Some of contractors were paid in cash and there are no supporting documents on how they were paid. The reason for these inflated 1099s seems to be that crooked employers use them to deduct higher expenses fraudulently and reduce employer taxes. What is the most effective way for contractors to fight erroneous 1099s and file their taxes based on accurate amounts received? Can they turn in employer to IRS? How?” 

Ask TaxMama  

Dear Nick, 

Of course. You can always turn in the employer. Especially if your friends are no longer working there nor want to return. In fact, when IRS collects $ from them, you can even get a reward. Just use Form 211. Or use Form 3949A just to report them. Or just read about the rules and call IRS

In the meantime? Report the full amount of any 1099 received. Always. That avoids audits. Then, deduct the part that’s not true. Include a detailed explanation of why the extra income is false. (i.e. never received that much money; received the money in January, I should have been an employee, etc. – whatever the reason is.) Include whatever proof you have. File the tax return on paper. It’s pretty simple. 

People file erroneous 1099-MISC all the time – even when it’s not on purpose. If the worker should have been an employee, you can use Form 8919 to pay only the employee’s share of the FICA/Medicare taxes. But it there are more forms needed.

Folks who have never done this before should work with a tax pro who knows how to do this. Ask if they have had experience with this before just turning it over to someone. Not everyone knows how to do this. OK? 

For the future? Rita Lewis, EA adds “Keep good records. Invoice your clients, keeping copies, of course. Try to get paid via check or even credit card. Deposit all income, cash too, in your business account. Create the best paper trail that you can.” Let’s face it, good records are always your best defense when it comes to IRS audits.

And remember, you can find answers to all kinds of questions about protecting yourself from fraudulent income claims and other tax issues, free. Where? Where else? At www.TaxMama.com.

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