Re: Consultants (IRA 1099) vs Employees (IRS W-2) Wolterman, Ken (WOLTERK) 14 May 2002 13:00 EST
I shared this with our tax compliance person here at the University of Cincinnati and here was his response: In my opinion, the accounting department in Alabama's scenario is being too conservative. They are correct in being CAUTIOUS about issuing a W-2 and a 1099-MISC to the same individual in the same year, but there's nothing inherently WRONG with it. It's just a "yellow flag" for a potential IRS auditor to look for. In UC's last audit, one of the things our auditors requested was a list of everyone who got both a W-2 and a 1099-MISC in a given year. The judgment will be based primarily on the nature of the work being done, and whether people in similar roles are being treated as contractors or employees. In the Alabama case, I'd have no problem putting Dr. X on a contract for the 5-day stint of seminars. The fact that Alabama later hired him as an employee shouldn't affect that, as long as the nature of his full-time work (they didn't say what it was) is different, and other people doing that same kind of work are treated as employees. When we run into this situation here, I ask the department to document the type of work the person has done as our employee, vs. the type of work they've done as a contractor. The more different, the better. A biology professor who contracts with us to tune pianos is a slam-dunk, and would have no problems passing IRS muster. -----Original Message----- From: Valerie Seaquist [mailto:xxxxxx@EMAIL.UAH.EDU] Sent: Friday: May 10, 2002 4:27 PM To: xxxxxx@HRINET.ORG Subject: [RESADM-L] Consultants (IRA 1099) vs Employees (IRS W-2) Good Afternoon -- I hope you can shed some light (hope, encouragement) on this situation. Our office is responsible for issuing subcontracts and consulting agreements funded by contracts and grants and in March we issued a 5 day consulting agreement (March 17- 21) to Dr. X to present several seminars. The agreement was for a fee and actual travel expenses. Dr. X did the seminars and submitted a voucher and receipts as required and we instructed the Principal Investigator to issue a requisition for payment. All this is as we would normally do. In late April, Dr. X was hired by the University as a full-time employee. Our Accounting Department is now holding the consultant agreement payment requisition for the fee portion of the payment saying that Dr. X is an employee so must be paid through the Payroll system. We explained that the consultant work preceded his employment and they said it didn't matter because IRS would be very upset if we issued a 1099 and a W-2 form to the same person in the same year. [Two different payment situations. Seems to me that this would warrant two different tax forms.] They now tell us that we must submit a payroll form for his March effort, despite the fact that he wasn't an employee. It seems to me that we are not being entirely straightforward with our payroll records if we do this. Is there some IRS ruling, regulation, whatever that would require that we treat non-employees as employees even if we have agreements with them specifically stating that we do not have an employer-employee relationship? As always, thank you for your wisdom & experience . . . Val Seaquist The University of Alabama in Huntsville ====================================================================== Instructions on how to use the RESADM-L Mailing List, including subscription information and a web-searchable archive, are available via our web site at http://www.hrinet.org (click on "Listserv Lists") ====================================================================== ====================================================================== Instructions on how to use the RESADM-L Mailing List, including subscription information and a web-searchable archive, are available via our web site at http://www.hrinet.org (click on "Listserv Lists") ======================================================================