What to do?

[Terry D EA]

I am enjoying the conversations this year regarding different positions one would take with given scenarios. So, here is another one for everyone's consideration>

One of my client's received a 1099 MISC for amounts they received for use of the internet in their home. This tax payer is a medical transcriptionist. The employer (University) incorrectly issued her a 1099 MISC in the amount of 700.00 for the internet service in her home. I advised the client this should have been included in her W-2 wages and the consequences of the 700 being included in box 7. She contacted her employer who stated the 1099 was issued incorrectly and she should not include this in her taxes and just disregard it.

Hmmm, did they send this to the IRS?? I don't know. Should we include this as income anyway simply because the 1099 is in my hands? My first position is to include it in income and complete the return. Second thoughts are to have the employer put in writing their mistake so if the IRS questions later which I feel they will when they do the income matching thing, we will have a defense.

Another twist, even if the employer states they never mailed the 1099 MISC to the IRS do we trust them? We are looking at about 300.00 in income and self employment tax on this. It will be interesting to see what the crowd has to say with this.

[WhitlockCPA]

I would include the amount on the return and then write it off. That way you don't have to worry about whether university re-issued 1099 with IRS and and you cover all your bases. You can explain if you ever need to defend the write off.

[Lion EA]

I would want to see something in writing from the employer that the Form 1099-MISC was issued in error. Or, I'd include the income. By the way, if they do correct the 1099, will they then add it to a corrected W-2? I think you have to wait while your client interacts with her employer. Or, tell her your charge for amendments.

[Terry D EA]

How would you make this a legitimate write off? Remember there is SE tax as any amounts in box 7 should indicate self employed and Schedule C. Only way I would see is actual expenses with separation of personal and business use which may or may not result in a wash. The internet expense totally in this area is approximately 39.00 per month or 460.00 per year. Now separate it out. Hmmm, doesn't look like the best choice to me.

Just to add, the employer claims the 700.00 was already included in the W-2 income.

[jshtax]

Put the $700 on return and offset with expenses to 0 it out.

[MsTabbyKats]

I'd do a C for $700. Then, as an expense write off $700..as "employer misclassification....income included on W-2".

[Richcpaman]

How would you make this a legitimate write off? Remember there is SE tax as any amounts in box 7 should indicate self employed and Schedule C. Only way I would see is actual expenses with separation of personal and business use which may or may not result in a wash. The internet expense totally in this area is approximately 39.00 per month or 460.00 per year. Now separate it out. Hmmm, doesn't look like the best choice to me.

Just to add, the employer claims the 700.00 was already included in the W-2 income.

Terry:

I think you answered your question. All you have to do is ask the T/P how much they paid for internet.

She is operating remotely for this hospital. (The hospital does not have to send 1099's till Feb 28th, they can delete the Info before efiling on the 28th....)

She gets paid a wage for doing this work, and then they reimburse for her reasonable, allowable home office expenses. Like Internet.

The W-2 is taxed, and then the reimbursements are not taxed if reasonable and allowable. Unless they are for more than the allowable amount then that should be in the W-2. Many employers are lazy, and they will 1099 many deductible, allowable expense reimbursements. Like they did here...

If push comes to shove, put the $$ on a Sch C, then show expenses that are reasonable to offset them.

Rich

[Terry D EA]

(The hospital does not have to send 1099's till Feb 28th, they can delete the Info before efiling on the 28th....) Agreed but we really don't know if they have or have not sent them. I use a third party filer for my 1099 and W-2 submissions and they have already been filed with the IRS.

Its not that I don't know how to do the write off but I do question creating a fictitious amount for the off set. I think the statement from the employer as to what has happened with detail of the income recorded on the W-2 form is the place to start. I will also ask my client to ask her employer what reimbursement expenses are they including in her W-2. Just for the internet or are there other items. If there are, then I can see using the full amount as an offset.

[Mr. Pencil]

The employer (University) incorrectly issued her a 1099 MISC in the amount of 700.00 for the internet service in her home. I advised the client this should have been included in her W-2 wages

I agree, and the IRS has made it dead simple to fix this common problem. No need for weird stuff like getting a corrected 1099 or doing Schedule C or a Line 21 offset or disregarding it until the CP2000 comes. Just file Form 8919 and move on.

[Gail in Virginia]

From what you said about the cost of the internet, this was not an accountable plan where she turned in the cost of the internet and the hospital reimbursed her. Instead, they compensated her at a rate they set for the use of the internet and equipment in her home. Therefore, including it in wages is the correct way to treat this amount.

That said, does she have her paystub showing what she was actually paid so that you can compare that with the W2? This would be helpful in determining whether or not the money has been reported somewhere.

[Terry D EA]

Thank you Mr. Pencil and I agree totally. You did refresh my memory regarding the form 8919 which does correct this problem.

[Terry D EA]

After speaking with my client further. The University has admitted the 1099 MISC form was generated incorrectly and has not and will not be submitted to the IRS until the February 28th deadline. Form 8919 does NOT solve this problem as the software calculates the amount entered as subject to social security and medicare tax and treats it as though these were amounts received as wages where withholding taxes were not properly withheld. The University has also stated the amount on the 1099 MISC has been included in her W-2 wages and using form 8919 would double dip the withholdings. So, I have asked my client to get a letter from the University stating the details of what has happened here in the event they accidentally transmit the 1099 MISC. I see no reason to trust that they won't transmit the form because of the mistakes already made.