Form 8919: Fill & Download for Free

The instructions for Form 1099-MISC are pretty clear that "prizes and awards given to employees" are to be reported on Form W-2 and not on Form 1099-MISC, so it's not entirely clear to me why the employer did this in the first place. The employer should have included this in payroll and done the proper withholding.If the employer won't correct the W-2, you file Form 8919 (http://www.irs.gov/pub/irs-access/f8919_accessible.pdf) to pay the Social Security and Medicare taxes due on the amount, using the reason code stating that you received both a W-2 and 1099-MISC and that the income on the latter should have been included on the former. The income reported on Form 8919 will also be included on Line 7 of your Form 1040.

Here are the steps you should take:File your form 1040 and use form 8919 and form SS-8 to report this situation.You will owe your federal, state and Social Security/medicare taxes. The IRS will then inquire with your employer as to why they issued a 1099 instead of a W-2 and the matter will be out of your hands at that point.

You have not been hired as a "1099-MISC", but as an independent contractor. It's not clear from the facts that you have presented as to whether or not you are actually an independent contractor or an employee, so please read this: Independent Contractor (Self-Employed) or Employee? and then ask yourself if you have been classified correctly.If you believe that you have been incorrectly classified as an independent contractor when you are actually an employee, then you can do a couple of things:File Form SS-8, http://www.irs.gov/pub/irs-pdf/fss8.pdf, to ask for an IRS determination of your status;File Form 8919, http://www.irs.gov/pub/irs-pdf/f8919.pdf, with your tax return. Note that you must file the SS-8 before you file your tax return with Form 8919.Realize that if you do this, the IRS will contact the company, so there is some risk to your position here. If you don't want to go this route, I understand - but then you are going to have to file Schedule C and pay the SE tax. The IRS is going after companies that routinely hire people as "independent contractors" who are truly employees, because quite honestly they're pushing their responsibilities onto people like yourself.But if you are properly classified, or if you choose not to challenge the company on this issue, you should look carefully for expenses that you can take against the Schedule C income - supplies that you purchased out of pocket to use at work and for which you have receipts, for example. That will reduce your overall tax burden.