Discussion:1099-Misc and form 4137

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Discussion Forum Index --> Tax Questions --> 1099-Misc and form 4137


MsTwizz (talk|edits) said:

10 February 2007
Hello All,

There are many threads out there discussing the 1099-misc income. My client is retired but did a couple of jobs for his ex-employer. He is not self-employed. The amount is box 7 is only $1800. Should I fill out a form 4137? or just report this as "other income" on line 21 on the 1040? Thank you!

Bottom Line (talk|edits) said:

10 February 2007
Not sure why you would fill out a 4137 since this doesn't sound like tip income. There are many definitions of self-employed and from this - sounds like he's self-employed.

Death&Taxes (talk|edits) said:

10 February 2007
If he was doing the same work as he did before retirement, his employer should have given him a W-2. Classic 530 type employee where he pays his share of FICA/Med on the 4137. I'd put it on Line 7. Proseries has such an option.

Kevinh5 (talk|edits) said:

10 February 2007
Hey, I want to be a 5:30 employee too. I hate going to work at 8:30. Is they any tax breaks for me?

MsTwizz (talk|edits) said:

10 February 2007
Bottom Line,

I did a search to try to get an answer before posting and found in thread, "1099-MISC - Not Self-Employed" suggestion to complete form 4137 instead of filing out a Sch C since they were not self-employed.

Also, it is my understanding that the work my client did was not related to the work he did for this employer. (he did some repair work). Therefore, I don't think he is considered a section 530 employee. (reading the reg....)

Any thoughts?

Death&Taxes (talk|edits) said:

10 February 2007
Now I agree with BL....

MsTwizz (talk|edits) said:

10 February 2007
o-k, thanks much!

Solomon (talk|edits) said:

11 February 2007
TC Memo 2006-19. Not only did the Appeals Section back off, Petitioner was awarded 16K litigation preparation costs.

Rev. Proc. 78-35. This RP was modified a bit to exclude a few types of services by Rev. Rul. 87-41.

Kevinh5 (talk|edits) said:

11 February 2007
Solomon, I just read the case. I had an article published in the EA Journal about 10 or 12 years ago on "How to get paid by the IRS" using 78-35 and 87-41. Somewhere I have a copy, but who knows, I have moved my office twice and am in a different state now.

Solomon (talk|edits) said:

11 February 2007
Kev - If you find it, let us all know. Thought you might have said post the TC Memo after Apr. 17th and I would have said put this discussion in your favorites because it is worth reading.

JR1 (talk|edits) said:

February 16, 2007
I'm a little concerned, no, more than a little concerned, that you may be encouraging people who unhappily got a 1099 to now pretend that it should have been a W2, throwing the earth off it's axis. To pander to such unhappiness unless it is a legitimately hurtful situation where the company lied or cheated or intentionally misrepresented the situation is going to create great harm to companies everywhere. I'm sorry, but just because someone is unhappy now does not entitle them to try to change the relatiosnhip retroactively at someone else's expense! They've been paid all along. Are we to believe that they think the taxes are paid by magic? That they get the gross amount as pay and then somehow have taxes taken out too? I'd like to see a firm stand against that kind of thinking which occurs this time of year.

Solomon (talk|edits) said:

16 February 2007
Actually JR, the TC Memo, RP, and RR do the opposite. Sec. 530 of the 1978 Act and subsequent guidance really provide some safe harbors to the issuer of the 1099-Misc so the recipient can not lightly construe it as wages. That is why if the recipient complains, I would recommend a SS-8.

JR1 (talk|edits) said:

February 16, 2007
Then let's stop pandering and telling them to call it wages and file the 4137. Instead, it's "Tough tata's and welcome to the self employed. Let's talk about mileage and cellphone use and other expenses to help cut your bill...." And I wasn't point at you particularly Sol.

Solomon (talk|edits) said:

16 February 2007
At the same time, I have seen 1099's with Box 7 income that should not have been. After calling IRS (no SS-8) and explained the situation, IRS agreed it was Line 21 income and gave me the explanation for Line 21 to make sure it sailed through. By the way, no 4137 required in those cases.

Glmpllc (talk|edits) said:

16 February 2007
so Solomon....are you going to share the magic line 21 explanation?

Solomon (talk|edits) said:

16 February 2007
Glm - I do that on a situation by situation basis and get the explanation for the particular situation. I will say this, initially was always told Sch C, but after in depth explaining it never failed to go to Line 21. Just don't try to abuse it or it will be Sch C.

Atlsouth (talk|edits) said:

17 February 2007
The IRS have many definitions for self-employed. You do not need to have a business to be considered self-employed. If he did repair work and is not employed by the company he is considered a non-employee for compensation. The company gets to show it as an expense for their taxes and does not have to withhold federal tax. Since he received the 1099-Misc with income in box 7 it is entered on line 12 on his 1040 and since he is considered self-employed you need to file Schedule C and at the income you stated it can be shown on C-EZ. You can not show this income on line 21 OTHER INCOME.

Death&Taxes (talk|edits) said:

17 February 2007
I am like Justice Potter Stewart: I know who is and isn't self-employed but facts and circumstances. The 18 year old who spends the summer doing odd jobs for a contractor does not deserve a 1099, for example. Believe me, if the kid falls off a ladder and hurts himself, bet the contractor suddenly changes his status so he can submit a workmen's comp claim. Ditto the woman who does temp help sitting at a desk in an office, answering phones, filing and the like. There must be a certain skill level before I consider them self-employed. Doing the 4137 is better than authoring a lot of expenses which might or might not be deductible to cut the tax on the 1099.

In the first case mentioned above, a man with a lifetime of experience would more likely be a subcontractor.

JR1 (talk|edits) said:

February 17, 2007
But you're creating your own definitions my friend, and disregarding the defined relationship established by the 1099 (apart from fraud or abuse of some kind), and which the recipient AGREED TO! To suggest to them now that they weren't skilled enough, whatever, merely panders to their own now selfish interest in going back to hose the 'employer' unfairly. Sorry, I can't buy into that. It's ethically wrong. Monday morning quarterbacking is just that. And you'e letting them change the game outcome after it's over.

MsTwizz (talk|edits) said:

17 February 2007
I'm going to take the conservative, safe way. I filed a Schedule C-EZ. I personally, really feel that he would be all right with line 21, his payments were for 1 job, for crying out loud, but, in the IRS's eyes that's enough to be considered "self employed."

JR1 (talk|edits) said:

February 17, 2007
No, MsT, that's not true. Courts are in agreement that unless they are indeed in the business of doing something, then it's not SE. So a one time gig, no matter how big the gig, isn't self employment. But that's not what we're describing here. And you're right, putting a 1099 box 7 on line 21 would get mail you'd think.

Death&Taxes (talk|edits) said:

17 February 2007
What I am saying JR is that it is ethically wrong for a contractor to stick an eighteen year old kid on a 1099....it is ethically wrong for for a lawyer to give a temp office worker a 1099. Last year it was a psychologist who gave his two office workers 1099s, which meant they had to get $250 business licenses, pay local business taxes plus the regular taxes. My client did not know that but found out before the end of the year. A confrontation with the husband of my client produced reimbursement this past April, which will be income this year.

These people know damn well they are skirting the law, and no amount of explanation to the recipient makes it right. There is no business relationship here; the kid wants to work, that is all. Dollars to donuts that they don't mention the 1099 to their workmen's comp people either. In essence these 'employers' do not take in enough cash to pay under the table, so they give a 1099. Well, if you can't afford the payroll taxes, stay out of the kitchen.

JR1 (talk|edits) said:

February 17, 2007
I hear your screaming, believe me, and I do see your point, to some degree. But all these people are totally unaware? They believe in the tooth fairy, too? They agreed to do a job, let's say for $10 an hour. After a week of 35 hours they got a check for $350. I know the math skills are rapidly deterioating these days...but somehow they think that there are taxes withheld on that? And claim surprise at year end that they have to pay taxes on it? C'mon. That's a stretch. They are usually complicit in what occurred, agreeing to the deal up front, and then getting cold feet later. I'm not suggesting that you shouldn't drop the hammer on an employer who's abusing this...but letting the 'employee' off the hook after the fact? And I can hire an 18 year old kid to do lawncare and make him a 1099 quite legitimately. If he knows enough to run a lawn mower and trimmer, I'm hiring him for a finished job without supervision of any kind, or desire or right to do so. Just because he's young does NOT define the relationship. I think you work with more employees, and I work with more employers...and I can't justify abusive situations any more than you can, but there are a lot of legit 1099 folks out there, who WANTED to be, until tax time. That's what I'm talking about.

Sw (talk|edits) said:

February 17, 2007
I think a lot of the time they know their not having taxes taken out and their fine with that, (a bigger check each week) then when they have their taxes prepared their not exspecting the large tax bill, so they complain and blame it on the employer.

Guadalupe (talk|edits) said:

17 February 2007
if you live in the City of Los Angeles and filed a schedule C, Mrs. Franchise Tax Board will keep City of L.A. informed about your self-employment activity and then you will get a letter requesting you to get a business license y you have not done so...Something else to take into account for people with ??? 1099s

Death&Taxes (talk|edits) said:

17 February 2007
Just like the City of Philadelphia. Their fee is $250 for a license, plus the Business Tax is over 7% of income yearly, compared to just over 4% for the employee wage tax....and in the first year you prepay the second year's tax. 'Now, Jean, you know you're responsible for your own taxes, don't you?' None of these so-called businessmen ever talk about stuff like city taxes, or that the SE tax is twice the Social Security rate. They are too busy salting money away in their Solo 401Ks.
  • Posts from non-tax pros, have been moved here, along with related responses.

DZCPA (talk|edits) said:

23 February 2007
$1,800 a year is NOT a self employed business. Show as income NOT subject to SS taxes. There is a case Bartok that discusses this nonsense.

Solomon (talk|edits) said:

23 February 2007
DZ - Can't seem to find the case you mentioned. Can you provide a link to it?


Glmpllc (talk|edits) said:

23 February 2007
Could this be the case DZ is referring to?

Batok v. Commissioner, T.C. Memo. 1992-727

Solomon (talk|edits) said:

23 February 2007
Thanks Glmpllc - you are correct.


RSRAGENCY (talk|edits) said:

5 March 2007
Not sure I have any different input,,,,,,but the reason 'I' use the SCH-C for a few of my 1099's is for credit toward SS/Medicare....every year the client received the 1099 from their church for typing.....Does this seem a good reason for the SCH-C?/


Sid (talk|edits) said:

9 April 2007
After reading all the responses above, I am still confused as to the right treatment of Income reflected on the 1099-MISC (Box 7 - Nonemployee).

I have client who did not file YR2005 Income Tax Return because of uncertainity as to where to report this amount. My client works for Staffing Agency,as a TSS, moving from one client to another as directed by the agency. At year end received a 1099-Misc with $40K on Box 7 (Nonemployee). My client noted that he is not self-employed and do not remember business related expenses in order to complete Sch C. (Never owned or operated a business)

Please advise on the best way to report this income.

Thanks SID

Bottom Line (talk|edits) said:

9 April 2007
Sid sounds like client is self employed

Sid (talk|edits) said:

9 April 2007
Can form 4137 be filed instead of Sch C.

Wwtaxes (talk|edits) said:

9 April 2007
Why would you want to do 4137 instead of a C if you're going to consider him self-employed? I usually find that informing them of the difference in their tax and asking a few key questions will prompt them to be a little more proactive about expenses. From what you describe, it sounds like he incurred mileage costs if nothing else (including for interviews). What about resume costs, postage, any supplies he needed for what kind of work he did (I don't know what TSS is), any educational costs if he brushed up on topics, etc.

I had a TP that does commercials and voice-overs with $20K in 1099-Misc. He stated he didn't really have any expenses, until I asked him about demo tapes, ISP costs (most work now done via internet submission), promo photos, and the biggest one of all - agency fees. He had a ton of very valid expenses that he never even thought about.

Bottom Line (talk|edits) said:

9 April 2007
Glad you asked. I don't know what a TSS either.

Sid (talk|edits) said:

9 April 2007
Sorry about that.. Therapeutic Support Staff (TSS) - Social work services.

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