New form could cause friction for employers
IRS introduces Form 8919 for incorrectly classified taxpayers

In the past, if you prepared a return for a client whose employer treated them as an employee but paid them as an independent contractor, you had to manipulate Form 4137 – Social Security and Medicare Taxes on Unreported Tip Income. You had to cross out the word “Tips,” hand write in the word “Wages,” and then enter the appropriate amounts on the form. And of course, because you made changes to the form, you could no longer e-file the return.
A new form, the 8919 – Unreported Social Security and Medicare Taxes on Wages, is now available to eliminate this issue of altering Form 4137.

What impact will this form have?
Beyond no longer having to hand write forms, the 8919 may provide a way to reduce your individual client’s overall tax liability.
Filing the 8919 may have its challenges, however, with an increased paperwork
burden in certain situations. Filing an SS-8, which is a three-page, 55-question document, may not be cost-effective for all clients. But for taxpayers in certain circumstances, such as those who can file using reason codes D and E, they may not require as much official paperwork. In addition, some taxpayers may fear that if they file the 8919, they may lose their jobs.
As a tax preparer, you may look at this as an opportunity to save your individual clients some money, but what about your business clients? You may want to have a conversation with your various business clients to see if they are handling this issue correctly. Are all of these businesses properly identifying their employees and independent contactors? Will they be able to justify their decisions if one of their “independent contactors” files a Form 8919?
The IRS has repeatedly cited underreporting as a major component of the tax gap, and creating the Form 8919 is one of the steps in identifying individuals and business that are not paying the appropriate amount of employment and income taxes. As a practitioner, you should be aware of this new form and its potential impact on your clients, both individual and business.

From October 2007

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