Paid a friend to help me with a project. He wants a W2. Really?

January 30, 2013 11:29 AM

A friend in the same field as me, who was underemployed last year, helped me on a project last year. Over the whole year it was a total of 32 hours (I paid him at $50/hr). Now he's asking for a W2. I think it's pretty clear that he was not an employee (W2), but rather an independent contractor (1099). Aside from inventing a time machine to go back and clarify the terms (which I didn't think would be a problem, considering our friendship), what should I do here? What's at stake?
posted by Anonymousness to Work & Money (14 answers total)

You haven't really provided enough information -- what did he say when you said " I think it's pretty clear that [you were] not an employee (W2), but rather an independent contractor (1099)."?
posted by Perplexity at 11:30 AM on January 30, 2013 [1 favorite]

Talk to an accountant. Ask your friend if he has one, because that might be who's telling him he needs a W2; if not, then find one and get an official opinion on what you need to do, and then do it.
posted by Etrigan at 11:31 AM on January 30, 2013 [1 favorite]

Does he not understand the difference? Or is he trying to be deceptive (in a way that I don't understand)?

Either way, just give him a 1099.
posted by The Deej at 11:31 AM on January 30, 2013 [8 favorites]

Are you sure he knows the difference? Maybe he's using "W2" as shorthand for, "that form I need from you so that I can do my taxes". If you just give him a 1099 and tell him to fill out a Schedule C, what will happen?
posted by deanc at 11:32 AM on January 30, 2013 [17 favorites]

Can you give him a 1099? Maybe he just doesn't understand the terminology behind the terms/forms? If he didn't fill out a W-4 why would he be expecting a W-2? I feel like he's just asking you for some sort of documentation.
posted by sweetkid at 11:32 AM on January 30, 2013 [1 favorite]

Response by poster: I haven't pushed back at all yet - I'm asking here first to better understand the situation and what might be at stake if I push back. The reason I'm a tiny bit suspicious is because he has been a little money-grabby in our dealings in the past. But perhaps you all are right and he just doesn't understand the distinction.
posted by Anonymousness at 11:34 AM on January 30, 2013

Best answer: If I were you, being a teensy bit concerned about his reaction, I would approach it by assuming he's just using W2 as a blanket term for "that tax thing I need" and give him the 1099 without any commentary.

Like, "here's your 1099 earnings report for your taxes!" and not, "I know you asked for a W2 but actually you get a 1099 because [reasons]." Just give it to him.

Then, IF he asks about it, you can say, "you were working as an independent contractor. Independent contractors get this form and don't get a W2."

But if he's kind of touchy about these things, approaching it right off the bat from a position of "you are wrong" or "why do you think x when it is obviously y," is not going to end well for anyone.
posted by phunniemee at 11:41 AM on January 30, 2013 [17 favorites]

Best answer: It sounds like your friend doesn't really know what he's asking for.

You should explain that a W-2 will make your payment to him significantly more expensive and burdensome for you since you would need to obtain an employer identification number (EIN) from the IRS and you would need to pay employer taxes on top of the gross amounts owed to him.

More importantly, it doesn't sound like the nature of his services to you constitute employment as defined by the IRS.
posted by jameslavelle3 at 11:44 AM on January 30, 2013 [3 favorites]

Adding to what phunniemee says, you may find there is some benefit to appearing to take his side. "Yeah, turns out, according to the IRS, I can't classify you as an employee, because blah blah blah. That sucks, huh? Hope the 1099 works for you."
posted by Rock Steady at 11:51 AM on January 30, 2013 [7 favorites]

Best answer: If you issue a W2, you are also responsible for withholding the appropriate taxes. In addition to the taxes withheld from an employee's paycheck, there is also the employer's half of FICA taxes to be paid which the employee does not see on their W2. If you are self-employed, you have to pay the entire amount of FICA taxes yourself. So it is possible that he knows exactly what he's asking for and is looking to minimize the amount of tax he needs to pay out of pocket.

Not knowing the details of your business and the work he did, I cannot comment on whether you should issue him a W2 or 1099. But if you are required to issue him a W2, that is going to cost you an additional $61.20 (=32 x 50 x .0765 x .5). That is in addition to any penalties for not properly withholding income and fica taxes, plus the state taxes or industrial/unemployment insurance that may also apply.

Assuming that he really was not your employee, it could be both money grubby and a misunderstanding of how the taxes work.
posted by stowaway at 12:11 PM on January 30, 2013 [3 favorites]

Yes, issuing a W2 vs a 1099 impacts you differently $/wise.

The rules on who's an employee and who's a 1099 contractor are pretty clear, if you look them up.
posted by fingersandtoes at 1:17 PM on January 30, 2013

Many people don't understand the difference between W-2s and 1099s. He may just be confused.
posted by Carol Anne at 1:33 PM on January 30, 2013 [1 favorite]

nthing "he doesn't know the difference, and just wants That Form For His Taxes". It's a common enough occurrence that I've heard it three times this month. Give him a 1099, tell him that's what he needs.
posted by holgate at 1:48 PM on January 30, 2013 [1 favorite]

"So I looked into it, and it turns out the form I need to give you is a 1099 rather than a W-2. Jeez, the IRS is weird, isn't it?"
posted by Sidhedevil at 2:10 PM on January 30, 2013