Interesting response to an old, old post. I can tell you how the situation actually played out now.
I paid the taxes for that year myself, saying I wasn't a contractor but got paid like one and asking the IRS to make that determination.
Took them more than a year, but they finally sent me a letter saying that I was indeed an employee and that my employer owed some taxes on me. I only worked for the guy a few months, so his part wasn't a lot of money at all.
I don't think it said anything about refunding the payroll taxes I had to cough up. Since it wasn't much money, I just put the letter away for reference this tax season. Unless the IRS tells me different, I'm happy and won't be in trouble for giving them too much.
I did worry that me buying lots of supplies would undercut my case, but seems it did not. I didn't make enough money to deduct them anyway.
I also reported a few dribs and drabs of contract work since then (odd jobs with no 1099s, less than $200 a year). I have good records in case of audit, but the IRS would have to be insane to waste their time on such small potatoes. We're talking $17,000 - $22,000 a year gross income here.
The only problem is one likely very unhappy ex-boss. A somewhat crazy Vietnam vet, no less. I actually kind of liked him and his wife and feel bad about bringing them to the IRS's attention. But dude was always whining about employees stealing his stuff and otherwise screwing him. Seems he made pretty good money taking advantage of them. Hopefully maybe he'll see the karmic connection.
I really had no choice. My alternative was to make up small business info despite not having a license or insurance and report the income as contractor income. Insignificant as my earnings may be, I don't ever lie on my taxes. I just don't.
Last edited by Spicnspan; 07-22-2011 at 08:47 AM.