Payroll Question

[Terry D EA]

S-Corp contractor paid supervisors a bonus for meeting production goals. No problem so far. The S-Corp paid the bonus as a 1099NEC. This should have been included in each supervisor's W-2. When I questioned the S-Corp, they said they knew this and made each of supervisor's aware that moving forward, any bonus pay would be included in their respective W-2 forms. Isn't the employer required to do catch up/backup with holdings and adjust their payroll liabilities and pay the employer's portion of the payroll taxes? My thoughts are yes. Opinions please.

[Lee B]

If they filed a 1099 NEC, I assume this was for 2021?

Yes, the payroll needs to be cleaned up and amended Quarterly Reports W-2s and etc need to filed.

 

[Terry D EA]

Yes, this is for 2021 and thanks for verifying my thinking.

[ILLMAS]

Have you asked if the production goals are duties under his/her supervisor roll?  

[Terry D EA]

11 hours ago, ILLMAS said:

Have you asked if the production goals are duties under his/her supervisor roll?  

No, I have not. After discussing this, the bonus is solely based on reaching on the job goals and profit goals. 

[jklcpa]

1 hour ago, Terry D EA said:

No, I have not. After discussing this, the bonus is solely based on reaching on the job goals and profit goals.

Whether or not the production goals are duties of his supervisory position is irrelevant. The fact is that these bonuses are tied directly to his employment with the company, not independent of it. 

In fact, it could be argued that his position as a supervisor directly influences overall company-wide production by making sure his department or employees under his control are working at their peak efficiency, or that his department is meeting its deadlines so that the company as a whole works more efficiently and is able to meet those production goals.

[Medlin Software, Dennis]

Incorrectly classified as 1099.  The usual is the employee will not want to make waves, and they will handle it themselves via their personal taxes.  IIRC, this has been discussed many times here with comments of how it was added as some sort of other income on the personal return.

If the employee has left, they will rarely use the labor rule body to enforce proper classification.  Typically, this will only happen if the former employee needs something else, such as WC or UI coverage.

I have not personally run across any employer who has cleaned up their error willingly or happily.  Employers do this on purpose, it is not an accident, no matter what they say after.  I have heard cases where the employer warded more money to help cover the taxes, or to make the issue go away.

As wonky as it is for me to say, having the default be employee is better for the worker. The CA ABC test is a bit harsh, but it is better to err for the employee.  The old 20 way test is both unworkable and badly abused.  The money to be made by abusing 1099's is incredible.  Consider AMZ, FedEx, DoorDash, Uber, etc.  I have an acquaintance who part times for DD, and they fail to realize they lose money or work for single digits per hour most of the time, if they considered what it really costs them for their vehicle miles and taxes.

[JohnH]

And to add to the confusion, the decision regarding how to respond may well rest on whether or not he individual likes their job.  If They handle it in such a way that it makes trouble for the employer, they may find themselves out of work altogether.

[Abby Normal]

At this point, the penalties and interest make retroactive fixing not worth it. Employees can handle on their 1040 with a form 8919, using Code H.

[JohnH]

The 8919 is one of those approaches that could potentially cost the person their job if the IRS queries the employer after the return is filed.  However, I've never heard of IRS following up with the employer on an 8919.  Has anyone else?  

I have prepared returns reporting an employer-provided 1099 as Self-Employment income, then advising the client to request reimbursement of half the self-employment tax plus a little extra to cover the tax on the reimbursement.  Sometimes the employer agreed, but other times they refused outright.  But even there, if the employee continues working for the company, future bonuses were probably discounted by the employer to put the employer back to square one. 

[Medlin Software, Dennis]

I have, but not for a few years.  Customer was asking me what t do (How about not short employees? )

My impression is both parties know what they are doing, and accept it.  On the other hand, there are some naive "employees" who get bamboozled into believing they make more money as a "contractor".  Somewhat like the PTB have tried to fool people by manipulating withholding to give the appearance of increasing net pay (not a left or right exclusive deal, both have done so).

[Abby Normal]

The IRS can barely open their mail, these days. I've filed a few 8919 over the years with zero repercussions, but the 1099 amounts were not huge. These bonuses sound like they might total to a much larger amount. But you can't control how these employees have already filed their returns.