Open Question: What should someone do if they have been incorrectly given a 1099 when taxes were paid?

My employer forgot for 3 months to take out taxes of my paycheck. She did take local out but that was the only thing. When I brought it up to her she corrected my paychecks. She said she was going to list me as a contracted employee that quarter even though the year before I had been an employee.She said I had to pay her the taxes for that quarter or I'd have to pay them when I filed my taxes the next year. So I wrote a check for some of the taxes and then she took extra money from my paycheck over a period of time to make up for the taxes. Now the local gov is saying I owe occupational taxes. I'm not sure what to do and I'm not sure if the 1099 was issued incorrectly?