I was working as an independent contractor in this small company. At that time, I was getting paid with no taxes being withheld. I assumed I was getting paid under the table, but 6 months after I stopped working there I received a phone call from them asking for my SSN. I did not give them my SSN.
Also, during the time I was working for them I was collecting unemployment insurance and since no taxes were being withheld I was declaring I was not working so I could keep collecting EDD money.
Do I have any rights to withhold my SSN after 6 months not working for them. I’m afraid if I do give them my SSN and didnt declare this income I will get penalized for not declaring income to EDD.
Any advice for me?
It’s important to remember that your employer is not your friend. An employer who suggests that you might be paid “under the table” is definitely not your friend, for about a million reasons.
No matter how many times an employer thinks it might be cheaper to pay you under the table, it’s not. An employer’s share of taxes attributable to an employer is ultimately much smaller than the share of taxes attributable to an employee. Additionally, wages paid to employees and independent contractor are also deductible as a business expense. So, from a financial perspective, it makes more sense for an employer to report wages paid – even if they implied to you that they wouldn’t – not to mention that it’s, you know, illegal. There are all kinds of nasty things that can happen to an employer if they don’t report you properly and then you get laid off, injured, or become spiteful.
That said, just because you weren’t having taxes withheld does not mean that they were paying you under the table. If you were, in fact, properly classified as an independent contractor (and not an employee), the employer would not have been required to withhold taxes. It may have been their intention all along to claim you and they just weren’t terribly organized… Nonetheless, the employer should have clearly indicated to you the terms of your employment, including how you would be classified and paid. You should have also been asked to complete a federal form W-4 (for an employee) or a federal form W-9 (for an independent contractor).
It sounds like that didn’t happen. But now, it sounds as if they’re trying to do things on the up and up, and they want to issue you a form 1099 reporting your compensation. Your refusal to turn over your Social Security number won’t prevent them from reporting your compensation to the IRS. Most likely, they will write “REFUSED” in the space where your Social Security number should go and send it to the IRS.
You will be subject to a fine for not providing your Social Security number for purposes of the form 1099. The biggest issue here isn’t so much the fine but the fact that you’re going to open your tax return up for scrutiny. The IRS will receive a form 1099 with your name on it. If you don’t report the compensation associated with that form 1099, your tax return will likely be flagged for review. If you haven’t reported your compensation, you will be responsible for the taxes associated with the income as well as penalties and interest.
As for your unemployment compensation issue, that gets tricky. Unemployment compensation is paid out of funds which are pooled from federal unemployment and state unemployment taxes and insurance. Cheating, by claiming unemployment compensation when you are working, actually drives up the costs of business for your former employer (trust me, I run a business) since the employer’s rates are affected by your claim. Additionally, since unemployment benefits are being strained right now, many states, like New York and Utah, are aggressively pursuing fraud claims. If you are caught accepting unemployment compensation while you are actually working, you could be prosecuted. Most states will require that you repay the overage plus a substantial fine. You could be required to perform community service, be placed on probation and in some cases, you could be jailed. You could be also disqualified from further benefits for a period of time.
On the tax side, I always advise compliance. In your case, you are required by law to produce your Social Security number to your former employer and properly report the income on your taxes. I would suggest that you immediately contact an lawyer that focuses on unemployment compensation and get some good legal advice about your repayment and reporting options on the UC side. You don’t want to make a bad situation worse. Good luck!
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
- Ask the taxgirl: “Temporary” Employees and 1099s
- Ask the taxgirl: Social Security Overpayments
- Ask the taxgirl: Overpayment
- Ask the taxgirl: Missing 1099 or Other Tax Forms
- Ask the taxgirl: Getting Paid Under the Table