Can a 1099 payment be classified as W-2?

A client paid their children 1099 i/o w-2 at the suggestion of their CPA, this is for 2025. The children received W-2 for 2024 and at least one them were eligible to participate in the pension plans.

I am told to accept 1099 as w-2 (which is the compensation definition in the plan document).

How can I accept this, makes no sense?

Here is the definition from basic plan document. Checked all the code etc and no reference to any 1099 equivalency.

"W-2 Compensation" means wages, within the meaning of Code section 3401(a), and all other payments of compensation to an Employee by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Code sections 6041(d), 6051(a)(3), and 6052. W-2 Compensation shall be determined without regard to any rules under Code section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code section 3401(a)(2))."

Anything I am missing?

I doubt you’re missing the essence.

Assuming the employer or service recipient and the retirement plan’s administrator are, in essence, one person (whether a business organization or a human), and assuming the worker’s parent controls the business:

Was the worker old enough that she could have made a nonvoidable contract? (Under most States’ laws, 18.)

Even if old enough, is it believable that the worker was not subject to the service recipient’s control for the work done?

Was the work done of a kind that would be done by nonemployees for a business of the kind the service recipient does?

If the plan’s administrator interprets the plan’s governing document to treat a worker tax-reported as a nonemployee as an employee and to treat her nonemployee compensation as an employee’s wages, what is the administrator’s reasoning for that interpretation?

Has anyone advised the employer/administrator about tax law’s duties of consistency?

If your client tells you it has considered carefully and accepts all risks involved, how confident are you that you would not be seen to be involved in a breach or violation?

Might it be effective to suggest to the certified public accountant—quietly, out of the view and hearing of your client—that the CPA reconsider one’s advice? And consider whether a Form 1099-MISC report was mistaken and should be undone and corrected with a Form W-2 report?

This is not advice to anyone.

@Jakyasar exactly which flavor of 1099 was issued to the children? MISC? NEC? or any of the other 20 flavors?

Unfortunately was not provided any info about the flavor. Client is being difficult to provide the information. Waiting to hear from the CPA, if ever.

All I got was, they were compensated as 1099 since they are in college.

This sounds like a situation where the college child has a campus or similar job associated with the college and receives a 1099-MISC.  If this is the case, then the income is not received from the plan sponsor and is not plan compensation.  There are other possible scenarios, almost all of which point to this is not plan compensation.

I suggest that you ask for a copy of the 1099 and look at who is listed as the payor.  If the payor is the plan sponsor and the form is a MISC, then there is at least an argument that this could be plan compensation.  Regardless of who is the payor, if the form is an NEC (Non Employee Compensation), then by definition the college child was not an employee of the plan sponsor and it is not plan compensation.

If the client is insisting that you must recognize the 1099 compensation as plan compensation, then you have to wrestle with where the boundary is for your professional ethics and your willingness to continue to serve the client.  Some may accept a client's written instruction to use the 1099 compensation, some may accept documenting receipt of some other verifiable documentation, and some may only accept having a copy of the 1099 that was sent to the college child (which should be part of their personal tax return documentation.)

Keep in mind that if you are the one making the decision absent formal documentation, this can be construed as a fiduciary act.

I'm unsure why you care.  It appears the original questioner is recording census data for a DB and/or DC plan.  But, after you have provided your annual reminder of the plan definition, isn't it the job of the PA to provide the census data, not your job to audit it? 

It appears the PA has done more than that, by telling you about a 1099. 

• Your proper response is (might be) to say, "That's not what the plan says.  So, if you want me to include this, I will assume, unless you tell me otherwise, that you are correcting the 1099 and issuing a W-2, but that is your task to do, not mine.  I don't need to see any of the form(s), but if you later tell me it was not done, then I will use that information to exclude this compensation per section X.x of the plan document." 
• OR, you could say the opposite, "Per x.x of the plan document, this is excluded.  When you tell me it has been corrected, I will include it."

IOW, you have done your consulting duty to remind the PA about the possible error/inconsistency, and that only the PA can fix it.  If you have a relationship with the plan sponsor's accountant and/or ERISA counsel and/or payroll vendor, you might casually mention this, hoping a comment from that other person will also carry some weight to get it fixed, whatever that fix is.

1 hour ago, Paul I said:

This sounds like a situation where the college child has a campus or similar job associated with the college and receives a 1099-MISC.  If this is the case, then the income is not received from the plan sponsor and is not plan compensation.  There are other possible scenarios, almost all of which point to this is not plan compensation.

I suggest that you ask for a copy of the 1099 and look at who is listed as the payor.  If the payor is the plan sponsor and the form is a MISC, then there is at least an argument that this could be plan compensation.  Regardless of who is the payor, if the form is an NEC (Non Employee Compensation), then by definition the college child was not an employee of the plan sponsor and it is not plan compensation.

If the client is insisting that you must recognize the 1099 compensation as plan compensation, then you have to wrestle with where the boundary is for your professional ethics and your willingness to continue to serve the client.  Some may accept a client's written instruction to use the 1099 compensation, some may accept documenting receipt of some other verifiable documentation, and some may only accept having a copy of the 1099 that was sent to the college child (which should be part of their personal tax return documentation.)

Keep in mind that if you are the one making the decision absent formal documentation, this can be construed as a fiduciary act.

I am definitely not making a decision and may even walk away

36 minutes ago, david rigby said:

I'm unsure why you care.  It appears the original questioner is recording census data for a DB and/or DC plan.  But, after you have provided your annual reminder of the plan definition, isn't it the job of the PA to provide the census data, not your job to audit it? 

It appears the PA has done more than that, by telling you about a 1099. 

• Your proper response is (might be) to say, "That's not what the plan says.  So, if you want me to include this, I will assume, unless you tell me otherwise, that you are correcting the 1099 and issuing a W-2, but that is your task to do, not mine.  I don't need to see any of the form(s), but if you later tell me it was not done, then I will use that information to exclude this compensation per section X.x of the plan document." 
• OR, you could say the opposite, "Per x.x of the plan document, this is excluded.  When you tell me it has been corrected, I will include it."

IOW, you have done your consulting duty to remind the PA about the possible error/inconsistency, and that only the PA can fix it.  If you have a relationship with the plan sponsor's accountant and/or ERISA counsel and/or payroll vendor, you might casually mention this, hoping a comment from that other person will also carry some weight to get it fixed, whatever that fix is.

Of course I care on the quality of the data I get and question every aspect of it. I agree not to play data police but up to a certain point. At the end of the day, any hiccup will be something I would be dealing with, whether I like it or not. I am not making the client's error/mistake my problem especially after I check and question it. Once I get the CPA involved, I will see what and if I will move forward.

I have mentioned the plan document provisions and that needs to be done for compensation recognition.

Just to be clear who is a W-2 employee verses a 1099 contractor isn't something that you just decide and I mean by anyone.  There are objective tests to determine if a person is an employee or not.  Not that is the TPA's problem but this we just decided means they are most likely ignoring the law. 

17 minutes ago, ESOP Guy said:

Just to be clear who is a W-2 employee verses a 1099 contractor isn't something that you just decide and I mean by anyone.  There are objective tests to determine if a person is an employee or not.  Not that is the TPA's problem but this we just decided means they are most likely ignoring the law. 

Absolutely correct

Does this help?

https://www.federalregister.gov/documents/2026/02/27/2026-03962/employee-or-independent-contractor-status-under-the-fair-labor-standards-act-family-and-medical?utm_campaign=subscription+mailing+list&utm_medium=email&utm_source=federalregister.gov

Agree with @ESOP Guy .  Very common we see a child or spouse paid W-2 wages from a small employer while doing zero of what an employee might do, just as we see them pay an individual, that does everything an employee would do, but they classify as a 1099 contractor.  As a TPA, we don't make those decisions for the employer.

Thank you all for your input, this was a great dsicussion.