"You just repeated all the underlying reasoning."

This is a Public community, and I was responding to your update of a 2 year old topic. First, nothing has changed. Now everyone else can read that fact. You zombied a dead topic. Accountant Man didn't notice this fact of your posting date and responded to the wrong party. We play nice with each other, here.

"What I asked was how to fix it."

Answered: "and proceed to file using true income and somehow applying the withholdings to 1040 categories." is not how you fix anything. It's how you wrongly report Payroll. The Payroll is the problem.

True income has nothing to do with what was run through Payroll. And the Sched C is wrong because the Payroll is in there as Gross Wage expense. There might be other funding mistakes, as well, because this is not only not unusual, it will be typical if they put various personal expenses as employee benefit, or employee reimbursement, or allowances, or whatever they wanted to call it to bury it. Take a look at vehicle, for instance, to see if that was handled right. Surprise! Take a look at Meals. Travel, because lodging should have been actuals, not per diem. Etc.

"You seemed to indicate that the individual would have to work with ADP to reverse the several years of reporting payroll to him. Given the lack of understanding of the situation by the initiator of this thread, I don't imagine that this situation is unique. Do you know if ADP has the willingness and the capability to do a full multi-year reversal?"

Oh, that's different. ADP has waived getting their own money back, when I have caught their errors many times that were to their favor. I doubt they will reverse anything they did, when they did as they were told.

Someone (you?) needs to list out everything that was done wrong, year by year, and address it, year by year, with the Feds and the State (and insurers? Worker Comp? Anything where "employee" wasn't the valid relationship). The "employer" has amended filing to do, and the "employee" has amended filing to do, and this will be when you get to make those boat payments.

Remember, TCJA changed things, so watch for year-to-year differences.

And that's why you should start a new topic, not posting inside a 2-year old topic. It's the same, only different.

Good luck.