Taxpayer asks:

I left my job as an editor at a media company, but continue to do some freelance work for them. When I submitted an invoice, I was told that for tax purposes I couldn’t be paid by them as an independent contractor in the same year that I was an employee. This means those invoices have 45% taken out for withholding taxes, which I assume means they were treated like bonus checks. But they weren’t bonuses, they were my income, and now come tax time, I’m not sure how to account for this on my Schedule C. I don’t know anyone else who has run into this problem–is their policy legitimate or are they just trying to make my life difficult?

Thanks for any advice you may have!

Taxgirl says:

Your company is kind of right. It is possible to be classified as an independent contractor and an employee by the same payor in the same tax year – but it is unusual. The IRS frowns on it because if you’re doing the same kind of work, it’s hard to argue that your status has really changed.

That said, it sounds like the company has chosen to continue to treat you as an employee. If true, you should have received a form W-2 that includes that income and that withholding – include that as normal. If not, then you should have received a form 1099 with withholding reported – include that information on your Schedule C.

If you did not receive any reporting forms, you need to contact the company. If they won’t issue a proper form, then you need to contact the IRS. You may want to read my prior post on the subject.

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

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Kelly Erb is a tax attorney, tax writer and podcaster.


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