Reply to DH 401K Maxed Out, What about me?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]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. [/quote]

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. [/quote]

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. [/quote]

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.[/quote]

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. [/quote]

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.[/quote]

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