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Subject Author Date
Schedule C or Form 4137 + Schedule U ? T 03-30-2007
Posted by T on March 30, 2007, 4:35 am
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 W2 Employee gets a severance package ($4K).
Employer issues a 1099 for this.
Employer does not want to issue a W-2 for the $4K.

Tax Preparer (CPA) suggests filing a Schedule C for Employee
for this. (I thought Schedule C was for Sole Proprietors and
not W2 Employees)

TurboTax suggests filing Form 4137, and a 1040 Schedule U
for this. (Won't this trigger an audit?)

CPA's suggestion results in $300 more in taxes.

What's the right thing to do here?

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Posted by A.G. Kalman on March 30, 2007, 11:25 pm
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 T wrote:

> W2 Employee gets a severance package ($4K).
> Employer issues a 1099 for this.
> Employer does not want to issue a W-2 for the $4K.
>
> Tax Preparer (CPA) suggests filing a Schedule C for Employee
> for this. (I thought Schedule C was for Sole Proprietors and
> not W2 Employees)
>
> TurboTax suggests filing Form 4137, and a 1040 Schedule U
> for this. (Won't this trigger an audit?)
>
> CPA's suggestion results in $300 more in taxes.
>
> What's the right thing to do here?

The CPA's recommendation is incorrect. Severance pay is
taxable compensation and belongs on a W-2. Taxpayer should
prepare a substitute W-2 (Form 4852). Include the employer's
name and EIN (found on the W-2 received) and enter the
"wages" on Line 7a of the 4852. Answer questions 9 & 10.
Include the "wages" with other amounts on Line 7 of the
1040. Taxpayer should prepare the 4137 and its corresponding
Schedule U to compute his half of the soc. sec. taxes and
medicare taxes and post it on Line 59 of 1040. Enter the
employer's name and EIN on the 4137 and everywhere you see
the word "tip" or "tips" change it to "severance".

Paper file the tax return.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Frederick Lorca on March 31, 2007, 10:15 pm
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> W2 Employee gets a severance package ($4K).
> Employer issues a 1099 for this.
> Employer does not want to issue a W-2 for the $4K.
>
> Tax Preparer (CPA) suggests filing a Schedule C for Employee
> for this. (I thought Schedule C was for Sole Proprietors and
> not W2 Employees)
>
> TurboTax suggests filing Form 4137, and a 1040 Schedule U
> for this. (Won't this trigger an audit?)
>
> CPA's suggestion results in $300 more in taxes.
>
> What's the right thing to do here?

Follow Alan Kalman's instructions and use Form 4137. IRS
has new Form 8919, "Uncollected Social Security and Medicare
Taxes on Wages," under development which they anticipate
releasing in October of this year.

"Tax Products Posting Schedule"

http://www.irs.gov/formspubs/article/0,,id=169088,00.html

Frederick Lorca

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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