[Nevergiveup2012]

This question is not related to CPA exam at all.

I recently started working for a tax firm, which is a new area to me since my past experiences were mostly in Audit and private industry.

I am in the process of preparing a tax return for a client who works for a company . He receives W-2 from his employer but they didn’t withhold any federal, Social Security, and medicare taxes from his paychecks. Is my client considered a “self-employed” then?. Should his income be reported in Schedule C ? and he would be subject to self-employment taxes. or should his income be reported under “wages” in 1040?

Your advise is appreciated. Thank you

BEC - 86 (8/31/12)
AUD - 97 (11/18/12)
REG - 83 (5/12/13)
FAR - 91 (12/2/13)
Done!!!

[fuzyfro89]

I'm not a tax person, I struggle to even do my own, but I'd like to give it a shot. Since your client's “employer” did not withhold anything, they're basically cutting him a check? I'm guessing he's a “consultant” with no benefits through the company?

If that is the case, then I believe he is technically self-employed. Since the company did not pay their half of FICA taxes, he will have to do this through self-employment reporting.

[fuzyfro89]

I'm not a tax person, I struggle to even do my own, but I'd like to give it a shot. Since your client's “employer” did not withhold anything, they're basically cutting him a check? I'm guessing he's a “consultant” with no benefits through the company?

If that is the case, then I believe he is technically self-employed. Since the company did not pay their half of FICA taxes, he will have to do this through self-employment reporting.

[Study Monk]

Can you not call your client and ask? Employers and “employers” can make mistakes.

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[Study Monk]

Can you not call your client and ask? Employers and “employers” can make mistakes.

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[Liss, Master of Coin]

I'm not a tax person but if they didn't deduct taxes why did he get a W2 and not a 1099?

I'm curious now if this will red flag them with the IRS and/or the state. Someone (probably his employer if he isn't an independent contractor) is going to get hit with penalties for not filing and paying the quarterly estimates.

CPA (MA, Non-Reporting)

The difference in winning & losing is most often, not quitting - Walt Disney

B - 33, 71, 79!
A - 32, 61, 70, 83!
R - 33, 58, 73, 69, 81!
F - 47, 78! 🙂
After 3 long years, I'm finally DONE!
I could not have done it without NINJA MCQs.

Used: Roger for his Videos, WTB, and NINJA Audio, Notes and Test Bank.

[Liss, Master of Coin]

I'm not a tax person but if they didn't deduct taxes why did he get a W2 and not a 1099?

I'm curious now if this will red flag them with the IRS and/or the state. Someone (probably his employer if he isn't an independent contractor) is going to get hit with penalties for not filing and paying the quarterly estimates.

CPA (MA, Non-Reporting)

The difference in winning & losing is most often, not quitting - Walt Disney

B - 33, 71, 79!
A - 32, 61, 70, 83!
R - 33, 58, 73, 69, 81!
F - 47, 78! 🙂
After 3 long years, I'm finally DONE!
I could not have done it without NINJA MCQs.

Used: Roger for his Videos, WTB, and NINJA Audio, Notes and Test Bank.

[Tarheelgirl]

I have prepared taxes for 4 years and currently a tax auditor.

In my opinion, since he received a W2, that is not reported on Sch C but reported as wages. If he had a 1099Misc and box 7 was completed then you would fill out a Sch C. Being the client did not have any taxes withheld they may have filled out their W4 (federal withholding) out wrong to not have taxes withheld. If they were supposed to have taxes withheld then the client needs to take that up with their payroll dept. Where employed.

FAR - 46, 79 (7/8/14)
AUD - 56, 59, 2/23/15 3rd times a charm!
BEC - 69, 74 Really??
REG - April, I hope. Fingers crossed!

[Tarheelgirl]

I have prepared taxes for 4 years and currently a tax auditor.

In my opinion, since he received a W2, that is not reported on Sch C but reported as wages. If he had a 1099Misc and box 7 was completed then you would fill out a Sch C. Being the client did not have any taxes withheld they may have filled out their W4 (federal withholding) out wrong to not have taxes withheld. If they were supposed to have taxes withheld then the client needs to take that up with their payroll dept. Where employed.

FAR - 46, 79 (7/8/14)
AUD - 56, 59, 2/23/15 3rd times a charm!
BEC - 69, 74 Really??
REG - April, I hope. Fingers crossed!

[Tarheelgirl]

To add, I have seen a few cases where people choose to not have taxes withheld from there income. Why I do not understand, but it does happen. That is when you advise them to reevaluate there W4.

FAR - 46, 79 (7/8/14)
AUD - 56, 59, 2/23/15 3rd times a charm!
BEC - 69, 74 Really??
REG - April, I hope. Fingers crossed!

[Tarheelgirl]

To add, I have seen a few cases where people choose to not have taxes withheld from there income. Why I do not understand, but it does happen. That is when you advise them to reevaluate there W4.

FAR - 46, 79 (7/8/14)
AUD - 56, 59, 2/23/15 3rd times a charm!
BEC - 69, 74 Really??
REG - April, I hope. Fingers crossed!

[impska]

The two most likely reasons for weird W-2s are:

1) The W-2 is just plain wrong.

2) There is another W-2 out there – often from the same company – which shows the withholding. This happens most often with people who make more than the max for SS withholding.

What to do: Do you have their prior year documents on file? If so, look to see if their W-2 from that company was odd last year and see what was done about it.

AND/OR – have the client contact their payroll department and ask about it.

REG - 94
BEC - 92
FAR - 92
AUD - 99

[impska]

The two most likely reasons for weird W-2s are:

1) The W-2 is just plain wrong.

2) There is another W-2 out there – often from the same company – which shows the withholding. This happens most often with people who make more than the max for SS withholding.

What to do: Do you have their prior year documents on file? If so, look to see if their W-2 from that company was odd last year and see what was done about it.

AND/OR – have the client contact their payroll department and ask about it.

REG - 94
BEC - 92
FAR - 92
AUD - 99

[Tncincy]

He can have a w2 with no withholdings. Does he have other income? You could verify the w2 to make sure it is correct. or simply refuse to complete the return if you don't feel good about the information. It's all kinds of scams going on.

It begins with a 75
Been here too long as a cheerleader....ready to pass

[Tncincy]

He can have a w2 with no withholdings. Does he have other income? You could verify the w2 to make sure it is correct. or simply refuse to complete the return if you don't feel good about the information. It's all kinds of scams going on.

It begins with a 75
Been here too long as a cheerleader....ready to pass

[Nevergiveup2012]

The client is a pastor and his employer treats him as if he's an independent contractor. He doesn't receive any insurance benefits and have been told by his employer “the church” that they wouldn't withhold any of his taxes. Since this is a new job, prior year tax return doesn't help me. The part that confuses me is the W-2. In my opinion , he should have received 1099 as supposed to W-2.

His W-2 shows wages in box 1, but the rest of boxes left as blank. I believe that his employer probably didn't pay the employer portion of Social Security and Medicare either. If this is the case, my client would be responsible for both the Employee and Employer portions of SS and Medicare. Schedule C is more appropriate in this case and the ER portion of SS and Medicare would be deductible for him.

Since I don't want to trigger any red flags with the IRS, would it be too late for his employer to do a form correction? how difficult is it for them to issue a 1099 and change the W2? I am so not familiar with issuance of 1099

BEC - 86 (8/31/12)
AUD - 97 (11/18/12)
REG - 83 (5/12/13)
FAR - 91 (12/2/13)
Done!!!

[Author]

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