Question regarding retention bonuses?

I work for a small business (8 employees). In 2007, our company owner decided it was time to retire and quickly made arrangements to sell to another small business owner. As part of the selling "incentive" she offered five employees a contract that stated if we remained with the company for one year, she would pay us each a $5,000 cash bonus..Incidently, she did not actually offer us the contract until after the sale had already been made, so technically she was no longer our employer. We did not know this at the time however. Long story short, one year goes by and we each receive a cashiers check for $5,000. On January 31, 2009, we each received a 1099misc. The payor, is listed as the former owner's name, LLC. ( a new consulting firm she has started);box 7 is checked (non-employee compensation).This box would classify each of us as being self employed or independent contractors, which is not correct. I called the IRS helpline for assistance and spoke with someone who reminded me of a 3rd grader reading out of a college level workbook, so that wasn't helpful. They did tell me that those should be considered wages. Is this true and if so, wages from whom? She was no longer our employer. So here is where I am with this. It is my understanding that a 1099 is not the correct form and that at w2 should have been sent to me. Nothing was taxed, obviously, and as "wages earned" the former owner was also required to contribute to a portion of the taxes (SS tax, FICA.. ) I am confused as to how to claim this, what to do next, mad as hell that I have to pay tax on it when, as far as I am concerned, it was a gift to 5 individuals for our years of hard work as well as a means to convince the new owners to buy the company . I want to get my taxes filed and be done with it but keep getting so many different answers that I don't know where to turn now. Help please!

Ghost of Zeuz

Definitely not a gift. You'd have to pay tax on a bonus, regardless of how it's categorized.

It should be treated as wages rather than 1099 income. I'd recommend paying the amount on your tax return as is, and sue your former employer, LLC (in small claims) for the portion of tax that should have been paid by former employer, LLC.

ronimg

Seems to me that a 1099 is the correct form since you did not receive the money until a year later from your former employer. You will have to pay taxes on it. But you would still have had taxes taken out if it came in the form of a payroll check.

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