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QUESTION DETAIL
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Our company is currently incorrectly paying the CEO with a 1099 form as opposed to a W-2 form. We understand that it is a mistake. What should we do to correct this issue and how much should we expect to pay in penalties?
ANSWER
The BIDaWIZ Team's Answer:
You will need to amend returns if the mis-classification relates to prior years. You will need to correct withholding for current year reporting as well. We would also recommend that you participate in the Voluntary Classification Settlement Program provided by the IRS. This will help you to mitigate penalties and interest.
In terms of potential penalties, they can be steep. The federal penalties assessed by the IRS would be 1.5% of the wages plus interest accruing daily, plus 20% of the FICA that the employee should have paid and 100% of the FICA employer should have paid as well as 100% of FUTA. This assumes unintentional mis-classification as referenced in IRC Section 3509.
References: IRC Section 3509
The BIDaWIZ Team's Answer:
I would also add that for the current year, you would have a new W-4 Form with no allowances and withhold the amount during the current pay period for the amount under-withheld.
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