<p>Sadly, we heard from the IRS today. They want an additional $521 from my son to cover 12.4% social security taxes and 2.9% medicare taxes on his earnings. These are what we call “self employment taxes.” </p>
<p>My son’s situation is a little different because he accepted the job as an unpaid co-op (internship if you will). He took the job expecting no pay. Only after he finished his 6 month job, which could hardly be considered “self employment”, his former employer of their own volition sent him a check for a few thousand dollars. Then in January of the following year he received a 1099 MISC from his former employer. My son treated this as income on his tax return and paid income tax. Well, that wasn’t good enough for the IRS. They want their social security and medicare taxes. (Not that I blame them) They either get half from the employer, or they get all from the worker. </p>
<p>I am going to recommend that (do some research first) my son file a revised tax return that counts the payment as an honorarium, or a gift, which will not be taxable. I think he has a strong case since he took the job as an unpaid position and expected no compensation. The money, after he finished, was an unexpected bonus. He didn’t ask for payment and never suggested he should be paid nor was an amount ever discussed.</p>
<p>Every self-employment “contractor” type job I’ve ever had resulted in a 1099-MISC. If your son doesn’t want to pay taxes, he should have a conversation with the accounting staff at his internship location. There may be a way that company can re-characterize the money he was paid, and then they can straighten things out with the IRS.</p>
<p>Already have it. It’s called the Standard Deduction. Granted that doesn’t even cover the average property tax bill here in CT (never mind mortgage interest, charitable giving, etc), but if “simple” is paramount …</p>
<p>I’m like HappyMom and Igloo, collecting and organizing the paperwork is 90% of the job. And I just hate that you’re dealing with accountants at their busiest, tiredest, testyest time of the year. “Say Joe, I think line 56 is $175 low. Could you confirm it is and then make the appropriate changes in the return. Oh, and I’ll need a new set of quarterlies obviously.”</p>
<p>NJres: OUCH! I’m hoping not to hear again from the IRS. Daughter got a 1099 from a med school which paid her to be a practice patient. I reported it on the income line for the 1040 and did not pay SE taxes for her, and the IRS (rightly so) contacted us in June. My tax-preparer friend wrote a letter stating that it should have been listed as “other income”, that it was a hobby for her. Haven’t heard from the IRS since then.</p>