DH 401K Maxed Out, What about me?

[Anonymous]

Anonymous wrote:actually, i think OP could get into trouble potentially if she takes advantage of an SEP or other self-employed deductible retirement program that otherwise wouldn't be available to a W-2 employee whose employer doesn't offer a 401(k).

chances of her getting caught are probably slim to none, but still a possibility.

She didn't chose how she is paid, there is not much for her to "get caught" on. If she gets an FEIN, uses the FEIN in her interactions with the employer rather than her SS, and operates as a self employed person (paying self employment taxes, reporting on schedule C), I strongly doubt the IRS would have any issue with her using self employed retirement plans. Any liability here is with the employer.

[Anonymous]

Anonymous wrote:Ugh...

Yeah I don't want to get my employer in trouble but I also don't want to be misclassified by the IRS either! I don't want them in my shorts just because he unknowingly misclassified me. I say unknowingly because he is a very ethical guy so I can only assume this was done in error.

For clarification - he is a financial advisor and I am his marketing and admin person. All of my work is directly related to his business. I don't perform any services not related to his day-to-day business.

According to IRS 20 Factor Test – Independent Contractor or Employee http://www.appraisalinstitute.org/newsadvocacy/downloads/key_documents/IndependentContractorVsEmployee.PDF
there is no doubt in my mind that I am an employee and not an independent contractor.

Thank you to the earlier PP who pointed this out to me. This would have NEVER crossed my mind.

I don't think I want to get an FEIN just so that I can contribute more to my retirement and have it count against my income. Sounds to me that if I did this, I would in turn be paying much higher taxes as I would be paying self-employment taxes which is the 7% one of the PPs alluded to. I think

[Anonymous]

A SEP-IRA is much simpler than a solo 401(k) but can have lower contribution limits (for the SEP it is 25% of income or $51000 whichever is less, for the solo 401k it is a combination of "employee" and "employer" contributions, which have different limits but also have a max potential of $51000).

But both a SEP and solo 401k are meant for self-employed people, not employees, so you'd have to decide if you are ok treating yourself as self-employed.

[Anonymous]

Anonymous wrote:A SEP-IRA is much simpler than a solo 401(k) but can have lower contribution limits (for the SEP it is 25% of income or $51000 whichever is less, for the solo 401k it is a combination of "employee" and "employer" contributions, which have different limits but also have a max potential of $51000).

But both a SEP and solo 401k are meant for self-employed people, not employees, so you'd have to decide if you are ok treating yourself as self-employed.

Thanks. I guess I have to do the math then. We have $600K in retirement already plus 2 homes with equity and a very large inheritance coming our way. Plus DH has lots of stock at his company, some of which has vested already but most will be vesting over next 3 yrs. We expect to accumulate about $3-4M by/for retirement which is 12-15 years away. Not so sure I want to overfund retirement, which is a distinct possibility as our home will be paid off by then, so a large chunk of what we pay for housing will go away. Be that as it may, I need to decide which side I'm on and stay the course.

[Anonymous]

Anonymous wrote:A SEP-IRA is much simpler than a solo 401(k) but can have lower contribution limits (for the SEP it is 25% of income or $51000 whichever is less, for the solo 401k it is a combination of "employee" and "employer" contributions, which have different limits but also have a max potential of $51000).

But both a SEP and solo 401k are meant for self-employed people, not employees, so you'd have to decide if you are ok treating yourself as self-employed.

If you make less than 200k from self employment the individual 401 is by far the better option. You have to have an FEIN, and you technically have to fill in a yearly form (but don't have to actually file it unless plan assets are over a threshold, I believe 1 million).

Also - you should be reporting this as schedule C income and paying self employment taxes (~15%, since you have to pay the employer and employee portions), otherwise this income will not count for social security purposes. You can't really put this anywhere else on the return, as the IRS will take issue with you putting any business income in the "other income" line. That is one they will audit you on and will assess the self employment taxes.

In theory your employer treating you as an employee would mean you don't pay the employer 7%, but in reality your comp would probably be adjusted to reflect that, so it would be a wash to you.

[Anonymous]

Anonymous wrote:

Anonymous wrote:actually, i think OP could get into trouble potentially if she takes advantage of an SEP or other self-employed deductible retirement program that otherwise wouldn't be available to a W-2 employee whose employer doesn't offer a 401(k).

chances of her getting caught are probably slim to none, but still a possibility.

She didn't chose how she is paid, there is not much for her to "get caught" on. If she gets an FEIN, uses the FEIN in her interactions with the employer rather than her SS, and operates as a self employed person (paying self employment taxes, reporting on schedule C), I strongly doubt the IRS would have any issue with her using self employed retirement plans. Any liability here is with the employer.

I wouldn't bank on that. If she isn't a 1099, then she should not be eligible for an SEP or any other kind of self-employed retirement benefit. I have to imagine the IRS could/would make her take the money out of the plan and count the contributions as taxable income -- the IRS is losing out otherwise.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:actually, i think OP could get into trouble potentially if she takes advantage of an SEP or other self-employed deductible retirement program that otherwise wouldn't be available to a W-2 employee whose employer doesn't offer a 401(k).

chances of her getting caught are probably slim to none, but still a possibility.

She didn't chose how she is paid, there is not much for her to "get caught" on. If she gets an FEIN, uses the FEIN in her interactions with the employer rather than her SS, and operates as a self employed person (paying self employment taxes, reporting on schedule C), I strongly doubt the IRS would have any issue with her using self employed retirement plans. Any liability here is with the employer.

I wouldn't bank on that. If she isn't a 1099, then she should not be eligible for an SEP or any other kind of self-employed retirement benefit. I have to imagine the IRS could/would make her take the money out of the plan and count the contributions as taxable income -- the IRS is losing out otherwise.

She said she received 1099 wages in the initial post. It's called reading. Top to bottom, left to right. A group of words together is called a sentence. Take Tylenol for any headaches, midol for any cramps.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:actually, i think OP could get into trouble potentially if she takes advantage of an SEP or other self-employed deductible retirement program that otherwise wouldn't be available to a W-2 employee whose employer doesn't offer a 401(k).

chances of her getting caught are probably slim to none, but still a possibility.

She didn't chose how she is paid, there is not much for her to "get caught" on. If she gets an FEIN, uses the FEIN in her interactions with the employer rather than her SS, and operates as a self employed person (paying self employment taxes, reporting on schedule C), I strongly doubt the IRS would have any issue with her using self employed retirement plans. Any liability here is with the employer.

I wouldn't bank on that. If she isn't a 1099, then she should not be eligible for an SEP or any other kind of self-employed retirement benefit. I have to imagine the IRS could/would make her take the money out of the plan and count the contributions as taxable income -- the IRS is losing out otherwise.

She said she received 1099 wages in the initial post. It's called reading. Top to bottom, left to right. A group of words together is called a sentence. Take Tylenol for any headaches, midol for any cramps.

This is OP. Yes, I did say that I received 1099 wages BUT that's because I assumed I was a 1099 employee. This is my first time working in this manner, as I have always been a W2 employee. When my boss hired me he said "you will be 1099", and I didn't give it further thought because I assumed, as many do, that all that 1099 meant was that I would be paid GROSS and then pay my taxes directly to the IRS every quarter vs him paying me NET via payroll and have my taxes paid that way. After further extensive research and a few key comments from other PPs it is very clear to me that I have been misclassified by my employer - unintentionally I believe. Turns out I have been paying self employment taxes as part of my quarterly taxes. This all came about due to my question of how much I could stash away in a 401K or IRA if my DH was already max funding.

I just have to decide how to handle this. I intend to approach my employer about this - not to get him in trouble but so that he can classify me correctly going forward. I will not ask him to go back retroactively (I've only paid one quarter so far). I don't want the IRS in my business just because he didn't do something right and I don't want to pay more taxes than I should be!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:actually, i think OP could get into trouble potentially if she takes advantage of an SEP or other self-employed deductible retirement program that otherwise wouldn't be available to a W-2 employee whose employer doesn't offer a 401(k).

chances of her getting caught are probably slim to none, but still a possibility.

She didn't chose how she is paid, there is not much for her to "get caught" on. If she gets an FEIN, uses the FEIN in her interactions with the employer rather than her SS, and operates as a self employed person (paying self employment taxes, reporting on schedule C), I strongly doubt the IRS would have any issue with her using self employed retirement plans. Any liability here is with the employer.

I wouldn't bank on that. If she isn't a 1099, then she should not be eligible for an SEP or any other kind of self-employed retirement benefit. I have to imagine the IRS could/would make her take the money out of the plan and count the contributions as taxable income -- the IRS is losing out otherwise.

She said she received 1099 wages in the initial post. It's called reading. Top to bottom, left to right. A group of words together is called a sentence. Take Tylenol for any headaches, midol for any cramps.

She is being misclassified. It doesn't matter that she received 1099 wages, because that was done illegally. Ergo, if she knowingly takes a tax benefit based upon a fraudulent 1099 classification, the IRS conceivably could (if it ever found out about this) go after her for taxes, which likely would entail all of the $ she has put into the SEP account being considered taxable income in the year in which the IRS discovers that this was done. This is potentially disastrous and could result in a huge tax bill for her. Reading is important, but so is using your brain a little bit sometimes.

Having said all of that, there is probably very little chance the IRS would ever catch wind of any of this. I am not a risk taker, though, and would not do this.

[Anonymous]

Anonymous wrote:
If you make less than 200k from self employment the individual 401 is by far the better option. You have to have an FEIN, and you technically have to fill in a yearly form (but don't have to actually file it unless plan assets are over a threshold, I believe 1 million).

It really depends on whether you would make use of the possibly higher limits of the solo 401k. It's more work to set one up, it's not more flexible, etc.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:actually, i think OP could get into trouble potentially if she takes advantage of an SEP or other self-employed deductible retirement program that otherwise wouldn't be available to a W-2 employee whose employer doesn't offer a 401(k).

chances of her getting caught are probably slim to none, but still a possibility.

She didn't chose how she is paid, there is not much for her to "get caught" on. If she gets an FEIN, uses the FEIN in her interactions with the employer rather than her SS, and operates as a self employed person (paying self employment taxes, reporting on schedule C), I strongly doubt the IRS would have any issue with her using self employed retirement plans. Any liability here is with the employer.

I wouldn't bank on that. If she isn't a 1099, then she should not be eligible for an SEP or any other kind of self-employed retirement benefit. I have to imagine the IRS could/would make her take the money out of the plan and count the contributions as taxable income -- the IRS is losing out otherwise.

She said she received 1099 wages in the initial post. It's called reading. Top to bottom, left to right. A group of words together is called a sentence. Take Tylenol for any headaches, midol for any cramps.

She is being misclassified. It doesn't matter that she received 1099 wages, because that was done illegally. Ergo, if she knowingly takes a tax benefit based upon a fraudulent 1099 classification, the IRS conceivably could (if it ever found out about this) go after her for taxes, which likely would entail all of the $ she has put into the SEP account being considered taxable income in the year in which the IRS discovers that this was done. This is potentially disastrous and could result in a huge tax bill for her. Reading is important, but so is using your brain a little bit sometimes.

Having said all of that, there is probably very little chance the IRS would ever catch wind of any of this. I am not a risk taker, though, and would not do this.

It's Tommy Boy, lighten up ergo. She is going to receive a 1099, not much chance that will change unless things move very quickly.

You and I have no idea whether she should be an independent contractor or not. It is a complex test requiring information we don't have with no concrete answers, but rather a "determination". I have not seen or heard of an instance where the IRS pursued a taxpayer who has acted legally according to their circumstances. The IRS may try to come after unpaid SS and Medicare, but if she is reporting on schedule C and paying the employment taxes she would technically be overpaid (since she would have paid the employer portions, as well as her own). No reason for the IRS to penalize her for contributions to a retirement plan (it is deferral, not avoid ancestors of taxes), as she would have had that option (most likely) had she been treated as an employee. Sure, she should get clarification, but the risk is on the employers side.

I suspect this is more a case of ignorance of the law or lack of sophistication on employers part. They don't want to file for unemployment insurance, provide health care, retirement and other benefits. Without more indepth knowledge of the business and her role in it we can only go off of what she has told us.

[Anonymous]

Totally missed the Tommy Boy reference (underrated movie). We don't know the specifics here, but I can tell you (as a labor attorney on the management side) that it is extraordinarily unlikely that she is truly a contractor. My rule of thumb when clients ask me whether they should classify someone as a 1099 is "don't do it!"

I also tend to disagree that the employer bears all the risk. In the case of someone who has taken advantage of tax benefits that would have been otherwise unavailable to her had she been classified as a W-2, the IRS would put her on the hook and count all of that sheltered income as taxable income. I really doubt they would hit the employer with that liability, because the benefit for that went to the employee, not the employer.

[Anonymous]

OP here.

Let's assume that its been determined that I have been misclassified by my employer....and he opts to fix the issue moving forward. Are there specific taxes he would then be paying instead of me? Would I still be paid gross wages or would he take out taxes?

Just need to know if I am supposed to continue paying quarterly taxes - next due date is around the corner. FWIW, I had to estimate what I would owe last quarter based on taxes that were being taken out of my paycheck earlier in 2013 when I was a W2 employee with another company. Claimed 0 obviously, so maximum in taxes were paid to both MD and Federal.

Also, as I stated in one of my way earlier posts - he reports my SSN to the IRS so is it possible that he does pay the appropriate taxes for me and I'm just not aware of it? I truly have no idea. I don't want to look stupid going to him and saying "hey, you misclassified me" when indeed he did not? or does the fact that I pay quarterly taxes automatically make me an independent contractor in the eyes of the IRS unless proven otherwise?

I get a paycheck every two weeks. I go to an office to work, I work standard core hours 9-3, he provides me with an office, computer, and gives me specific tasks to do under his direction. I also work only for him in a professional capacity supporting his business. I don't get vacation, no benefits of any kind. I work I get paid, if I'm sick one day and stay home I don't get paid unless I do work from home.

[Anonymous]

Anonymous wrote:Totally missed the Tommy Boy reference (underrated movie). We don't know the specifics here, but I can tell you (as a labor attorney on the management side) that it is extraordinarily unlikely that she is truly a contractor. My rule of thumb when clients ask me whether they should classify someone as a 1099 is "don't do it!"

I also tend to disagree that the employer bears all the risk. In the case of someone who has taken advantage of tax benefits that would have been otherwise unavailable to her had she been classified as a W-2, the IRS would put her on the hook and count all of that sheltered income as taxable income. I really doubt they would hit the employer with that liability, because the benefit for that went to the employee, not the employer.

OP here - yeah, I'm certain at this point that I cannot take advantage of any "tax sheltering" because I do believe that I am W2 and not 1099. All I need is another IRS headache on top of the new one I have of being misclassified. I'm ok with leaving 401K and IRA contributions as is with DH maxing out and me not being able to do much more because he is fully-funding.

the REAL issue now is how to fix my misclassification issue without turning my employer in which I have no intention of doing. But I also don't want to pay more than I should be tax-wise.

[Anonymous]

OP here - I just found out that all the other people who had my position before me were W2...so now I am starting to think that he has knowingly misclassified me.

Now I am PISSED....I don't want to "turn him in" but if - after I talk with him and he says "no" to making me an official employee by IRS standards then I have to decide what to do.

With being "self employed" it seems that close to 50% of my pay is going towards taxes. Its not worth getting out of bed for what I make....