When should an employee file a 1099 form?

A version of this column appeared in Newsday, Oct. 14, 2009

DEAR CARRIE: I just started working in a sales position that pays me a salary plus commissions, or "bonuses," as my employer calls the extra pay. The company does not take out taxes from the bonuses and instead said we need to claim it on our taxes by filing a 1099 form. I would rather have taxes deducted so I don't have to deal with them later. Is this a normal process? -- Taxing Thoughts

DEAR TAXING: You sound like an employee, but your company is treating you like an independent contractor regarding your bonus. Independent contractors file 1099 tax forms because they are responsible for paying their own income-related taxes, such as Social Security and Medicare.

On the other hand, employers are responsible for deducting those taxes from employees' wages and including them on the workers' W-2 tax forms. And companies must also deduct the taxes from supplemental wages, a category that includes bonuses.

The supplemental-wage category is broad. "They include, but are not limited to bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses," the IRS says.

The tax rate on the supplemental wage payments depends on such things as the size of the bonus, the employee's withholding allowances and whether the bonus payments are paid as a part of an employee's wages or separately, according to the IRS.

So you're going to have to file the taxes your company didn't take out. Otherwise, the IRS will come calling. You must file IRS Form 8919 for uncollected Social Security taxes and Medicare taxes.

Ask your company to take out those taxes. After all, it's the company's job. You know that now, and it's time the company did, too. Contact the IRS at 800-829-1040.