You think you’re an employee; your “employer” thinks you’re an independent contractor. You decide to ask for a determination of status from the IRS using Form SS-8. Do you need to pay your federal income tax (through estimated payments and/or a payment on or before April 15th) or is your “employer” liable when the IRS determines that you really were an employee, not an independent contractor?
The Tax Court waded into this issue yesterday. There was no dispute that the individual in this situation owed the income tax. The question related to the penalties imposed by the IRS under Section 6651(a) for failure to file and Section 6654(a) for failure to make estimated tax payments: Is the fact that your employer goofed a good enough excuse to not file a tax return and not make estimated tax payments?
The Court dealt first with whether the failure to file penalty was justified. The petitioner noted that he didn’t file because he didn’t receive a W-2. That’s no excuse; indeed, the IRS has a procedure that an employee can follow when he doesn’t receive a W-2. As the Court noted, “On this point, petitioner’s reasoning is without merit…[I]t was petitioner’s obligation to pay the tax when due.”
The Court then looked at the failure to make estimated tax payments. The petitioner felt that he shouldn’t have had to make them, because the IRS ultimately determined that he was an employee and he had to wait until he received his W-2. The Court struck down that line of reasoning.
“During 2001, petitioner was treated by Compliance as an independent contractor. No Federal income tax was withheld from his wages. Accordingly, petitioner was under an obligation to remit estimated payments pursuant to section 6654(c) and (d). The fact that respondent ultimately determined petitioner was a Compliance employee does not negate petitioner’s failure to make these payments when they were due in 2001.”
Thus, the petitioner ended up owing the penalties. So if you ever find yourself wondering whether you need to make a tax payment that your employer should have made but didn’t, you probably do need to make that tax payment.
Case: Erwin v. Commissioner, T.C. Summary 2006-172