Back in March the company I work for wanted to cut cost and well since I had to be on pay roll to get insurance, they divided my pay to cover the cost of insurance and the rest they just wrote me a check from the company bank account. My boss told me that I do not have to pay taxes on that money because they aren't going to 1099 it. It feels completely wrong I'm not sure how to pay my federal or state because some money did go towards it and I didn't get to pay towards social security. I am wanting to buy a house next year and don't want this hurting that process. We have since been put back onto pull payroll end of August. Need a little help. I got paid $650 twice a month during that time that was not on pay roll and was taxed.
So, your company came up with a "brilliant" idea and then didn't check to see if it was legal or not.
They cannot legally split your pay with 1/2 to a W-2 and 1/2 to a 1099-Misc. The IRS knows this scam well.
You need to file form SS-8 and then a form 8919 with your taxes. You will report all pay as wages and add in the 7.65% for the part the boss didn't put on the W-2. The IRS will forward the income to the SSA to get you credit for earning it.
Well here is what you will need to do to file the right way. All of the money he paid you cash was supposed to be included in your normal paycheck. You can be a Whistle blower and report this to the IRS, they will be very interested in this matter. Whistle Blowers are protected by Labor Law, and you will not get fired. However your boss will not like you. But that is the BEST way you can leave things clear on your end.
Option 2: Include the ammounts he paid you cash as self employment income. You will pay Self Employment Taxes which is 15.3% This will cover medicare and social security.
I dont think option 2 is fair. Primarily because you will have to pay 15.3% on taxes. When you are on payroll your employer pays half of this tax for you. so you only pay 7.65% out of your pocket. Additionally your wages are in record with the State's Employment Department so IF you get laid off you will receive unemployment compensation on your FULL wages. Unemployement does NOT include Self Employment Income.
Your Boss is a Fraud. He should be reported. He does not care about you, he is just looking for ways to save money. Call the IRS or get some one who can help you with this. If you want to buy a house, you want everything to be clear. Banks don't usually consider Self Employment reliable/steady income. So you will end up loosing.
Remember your boss will have to pay a penalty for the backed up taxes he owes, but that will be the best thing for you. Its his fault anyway.
Hope this helps.