Taxpayer asks:
Dear TaxGirl,
Recently I received a request from a company to fill out a W-9 form. I am not, nor have I ever been, an employee of this company. However, I did receive money from them. I’ll explain quickly…
My mother worked as a 1099 employee for a manufacturing company. She sold millions of dollars of their product to different companies, and in turn that manufacturing company would then send her commissions. Unfortunately my mother passed away last year and as a result of her unexpected passing I, being her next of kin, was responsible for paying her funeral expenses. Because my mother had worked for this company for so many years, and was very close with the owners of the company, the CEO and CFO both felt that it would be the right thing to do to pay me a set amount of her commissions. They wrote me a check out of the company account and I accepted it thinking it was a gift. I am now being asked to complete a W-9 form. Since this was a “gift” am I required to fill out this form? And am I required to list this amount as income and therefor be taxed on it?
I’m not sure if it will help you, but the amount was $5000.00.
I appreciate any help you can provide me with this situation. I was always taught to never look a gift horse in the mouth, but now I guess I should first ask if there are tax implications! Ha!
Taxgirl says:
So this is a tough situation. Unfortunately for you, the IRS doesn’t consider payments made by an employer to an employee (or for the benefit of an employee) to be a gift. With that in mind, the CEO and CFO should have been more clear about the nature of the payments. However, it sounds as if they intended to settle with you for commissions owed to your mother, which means they’re going to report it as if it were taxable compensation.
Regarding the form W-9, they should have asked you to complete the form prior to issuing the check. However, if the form is required and you fail to complete it – whether the company asked you when they should have or not – you could be subject to a penalty from IRS (as will the company, but that’s their issue). Alternately, the company could issue the 1099 with the taxpayer ID marked as “REFUSED” which could raise eyebrows at IRS. I rarely find that it’s worth it to refuse to complete the form W-9 if you know they’re planning on issuing a 1099.
All of that said, I don’t know if this was properly payable to you in the first place from a tax perspective. There might be some complicating factors here such as the commissions being more properly payable to the estate (which it might have been if this was actually a settlement for money owed to your mother). You should contact your tax pro and/or estate attorney if you have questions or concerns about taxes owed on the payment.
One last thing… That bit about always asking first if there are tax implications before accepting gifts, compensation or money from third parties? Excellent advice. Promise me that you will in the future.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
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