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1099-NEC for spouse of the S-Corp owner

Forum|Forum|1 year ago
December 14, 2024
3 replies
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"Hi all,
Wishing you all prosperity and success this tax season!

A new client mentioned that his wife only occasionally does work for the business on a truly independent contractor basis (for example, doing work on her own schedule with minimal supervision).

I have several S-Corp clients who issue W-2s for their wives, but this new client has asked me to issue a 1099-NEC for hers.

Also, one of my old client asked me issue 1099-NEC for his wife for next year,2025, instead of W-2 which his S-Corp already issued for 2024.

What is your opinion?
Any help would be appreciated!"

ProSeries Professional

This topic has been closed for replies.

Best answer by TaxGuyBill

Look under "Common Law Rules" in the link below to help make a determination if the worker is an employee or a contractor.

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

IRonMaN

Level 15

Unless the spouses have an independent business that they are providing the same type of services to other clients, I'm going to put my money on that they really are employees. Lots of businesses have part time employees that come in when needed now and then, that doesn't make them independent contractors.

Slava Ukraini!

T

TaxGuyBillAnswer

Level 15

Look under "Common Law Rules" in the link below to help make a determination if the worker is an employee or a contractor.

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

qbteachmt

Level 15

"instead of W-2 which his S-Corp already issued for 2024."

Essentially, he's trying to outsource her job. Geez. Did anyone ask the wife how she feels about the change in worker (mis)classification, the loss of benefits (changes eligibility or potential coverage available for retirement, health insurance, the loss of worker comp coverage if she qualified), the increase in her tax load, the tracking for filing of a Sched C?

"on a truly independent contractor basis"

Truly?

"(for example, doing work on her own schedule with minimal supervision)."

That's not what "independent" means. That's what "self-starter" means. What does she do? Does she do it for other companies, too, as her own company and being a provider to others in addition to his company?

Don't yell at us; we're volunteers

HOPE2Author

Level 7

Thanks for reply: first I should say she is working as W-2 in other company, and when she gets home, works for S-Corp. All her W-2 from S-Corp will be $12000 in 2024.

I don’t have experience with this matter, so I’m not sure if the IRS will react to the change in the type of tax document received—W-2 for 2024 and 1099 next year.

It’s genuinely the case that upon returning home from her W-2 job, she takes care of the company’s tasks, even though the nature of the W-2 work is different from this work. ( like a Uber diver can get 1099 but could have a W-2 though)

::: the loss of benefits (changes eligibility or potential coverage available for retirement, health insurance, the loss of worker comp coverage if she qualified), the increase in her tax load, the tracking for filing of a Sched C?

Health insurance is deductible on Sch C as you know, or S-Corp, I believe that she does not insurance at her W-2 job.

She can contribute on retirement account as self-employed too.

Worker Comps is a decoration in our country, not very useful, specially if an accident happens in a home office so should bring a proof not happened in the kitchen !! for paying $350 it took 3 months and a lot of paper work, horrible.

She can pay voluntarily on EDD for unemployment.

Taxload are same: since he (S-Corp owner) has to pay 1/2 FICA for her and ADP fee and FUTA and .... may more than SE on her Sch C if the amount would be around $12000

Happy Holidays!

BobKamman

Level 15

"I don’t have experience with this matter, so I’m not sure if the IRS will react to the change in the type of tax document received—W-2 for 2024 and 1099 next year."

Yes, there is a little man with a green eyeshade who sits at a special desk reviewing each and every 1120-S from small employers for such changes. However, his job is threatened by a car dealer from South Africa and a Hindu vegetarian (with a biology degree from Harvard).

Seriously, what IRS computers may be able to compare is the ratio of officer compensation to shareholder distributions on Schedule K-1 not paying FICA tax. Watching those amounts is the best way to prevent an audit. But even in an audit, I doubt a revenue agent would propose an adjustment just to change a 1099-NEC to a W-2. I would worry more about the worker's compensation auditors.

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