For starters, I think you need to be careful here. It's my understanding that if you do either of the steps listed below, the IRS will most likely contact your employer. Not "might" contact, but "will" contact.

The first step is to file a Form SS-8 - Determination for Worker Status for Federal Employment Taxes and Income Tax Withholding. You can download this document at: www.irs.gov/pub/irs-pdf/fss8.pdf. You'd complete this form and file it with the IRS to have them determine the correct way for you to be compensated.

The second step is to complete your tax return to include a Form 8919. So instead of reporting the 1099-Misc as gross revenue on a Schedule C or as Other Income on the Form 1040, you report the income on the 8919, and pay income taxes plus your share of the Social Security and Medicare taxes on that income. You can download this form at: www.irs.gov/pub/irs-pdf/f8919.pdf.

Now, please keep in mind that if you are over the Social Security Max, the extra taxes you paid on this income is 2.9% of the amount reflected on the 1099-Misc. By filing a Form 8919, you'll pay 1.45% to the IRS. So you are probably only talking about paying an extra 1.45% of the amount of the bonus forgiven each year, assuming your salary exceed $106.8k last year and will exceed $110.1k this year. I guess you need to decide if possibly saving that much taxes is worth having the IRS contact your employer about your situation.

I hope this helps you out. If you have any followup questions, please let me know.

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