Bartender / No W2 - No 1099

[MAJ]

I have a client that started bartending for extra money. She pretty much makes up her own hours from what I understand. Her husband is on SS Disbility.

The bar where she tends did not / will not give her a 1099 or W2. She wants to claim the money. She also does bar tending / catering for parties and such during the summer.
My thought is to just claim all the $$ on Schedule C and take off basic expenses {travel, uniforms, etc}.

1) How will this affect the abilty for them to collect EIC. I personally know she tends bar there because I have seen her there on numerous occasions.
2) How do I cover myself for the EIC DD tests?

Thanks in advance.

[veritas]

I probably wouldn't prepare this return.

Not if EITC is involved.

[Jesse]

Does she have a checking or savings account where she can show a pattern of deposits of income earned? With EIC the taxpayer bears the burden of proof to prove income as well as expenses.

It's also a profession that would be rather difficult to subcontract - sounds more like an employee.

Also with Sched C/SE your could be talking Social Security fraud.

[Jiggers]

No taxes withheld?

Didn't she know from the get-go that they were not taking taxes out of her check?

Why didn't she do something then, including quit?

If they would have "fired" her, she should have filed for unemployment. Here in our state that flags an audit by the state when no wages were reported.

The state will report the wages, and supposedly advise the IRS.

[Snaggletooth]

Most Banks

...will not authorize a RAL if a taxpayer reports minimal self-employment income with no information return whatsoever.

There is a presumption that the barmaid is wanting to report this so she can collect EIC. This may or may not be true, but in most cases this is the situation. Until EIC became such a cash cow, most people working in bars didn't report their income at all, or even file a return unless their spouse had income.

If the EIC were less than the self-employment tax, a lot of this fraud would be stopped.

Helped a friend with a storefront fast tax service in a nearby town a couple years ago. A huge woman came in, easily 350 pounds, and not very tall. More like a blimp. She said she cleaned houses for $200/wk for 52 weeks for various people. Obviously no reason to receive a 1099. RAL Bank wouldn't touch this.

Dropped her pencil, and she asked her daughter to retrieve it. I turned it over to my friend and told him it would have to be his signature on the return. He told her it would have to be a paper return, and would charge her $100 up front. It worked. She got mad and said she didn't have $100 and stomped out.

[erchess]

My Two Cents

I think you are ok on the Due Diligence deal if you fill out and keep on paper or in your software the record of her answers to the questions and if she deposited in the bank the money she got from the bar. If she simply pocketed the money and spent it as cash (which I bet she did) I don't think I would do this return. Now all this is assuming that she got paid in cash. If she got paid by check, even personal checks that she took to a check cashing place, she should be able to get a record of those events - but if I were the tax pro I would have that record in my grubby little hand before I booted my computer to do her return.

[Kram BergGold]

My one cent

The bar is treating her incorrectly, under the table. However, she is required to report her income. Her first choice is to file an SS-8 form against the employer. If she does this she can report the income as wages. Then she has to decide whether to pay her 1/2 of FICA and Medicare. A recent court case says this is optional. In her case I think she would have to pay it, in order to claim EIC. If she chooses not to file SS-8 then I think she has to report income as SE. She will not have a transportation deduction unless she goes between two jobs or has a home office. Neither of which I would think apply. My only problem with this client is if her reported income just happens to acheive the maximum EIC then I might bail.

[MAJ]

No W-2 - No 1099 - UPDATE

Much of this started when the husband had a stroke and could no longer work. While fighting for SS disabiltiy she took to bartending for $$ to pay the bills.
I did their returns before the husband was disabled.

She bartended the entire year {paid as a waitress at $2 / hr or whatever the going rate is} which she didn't get a W2 for. I told her to ask for one. No Luck.

She does deposit the money into her checking account so there is a record of the income {I did see her bank statements}. This is what she pays the mortgage and bills with. While trying to establish cause I've asked numerous questions. While fighting for SS disability they only had this income. It paid more than a simple job would offer.

Questions:
Q: When you get paid each week do you deposit the money into your checking account?
A: Yes

Q: The total amount tha tis deposited in the bank, this is the amount that you are reporting?
A: Well, not exactly. I don't always deposit the full amount. I usually keep some cash on hand.

Q: So the amount you are reporting equals the amount depsosited + the cash amount?
A: Roughly. I don't always write down the exact amount of cash I keep.

Me: You have to keep a ledger and you have to tell your boss that you're really an employeee and as such he should provide you with a W-2 which reports your wage {as little as they are} as well as the tips that you report. Hell, it's a writ eoff for him!

It's a rough call. I know she's working there.
She's reporitng the actual amount of money..
If she didn't report income the property taxes and mortgage interest alone would thow up a flag. The first year they drained a lot of money out of savings {again, saw the statements}. Other than not getting paperwork from the employer this really is an up and up deal. I just want to limit my exposure. Now that SS disability is in for a full year she may not qualify for EIC. But I'm trying to cover myself {and them} the best I can.

If she comes back this year {no reason to suspect she won't}. I was thinking she should bring bank statements to substantiate the income {both SS payments and her deposits}. I now scan all documents and keep copies on an encrypted hard drive.

She's told me that she's afraid to make waves at the job - she needs the money.

What to do? She's not bright enough to figure out the EIC angle. Believe me - She's a blonde that jokes were written about. Hell, a movie could be made!..

[sea-tax]

don't forget about the tips.

[S T]

Seems

like you are doing your best for due diligence, so keep all the documents and records that you can on behalf of the client and to also protect yourself. Maybe even have her sign a statement that she has provided you with all of the income reconstruction, once you can arrive at the amount.

Then like you said, instruct her or assist her with better record keeping for 2009, doesn't sound like her employer will convert her to W-2 wages. I would just be careful about taking any expenses associated with bartending on behalf of the client.

Good Luck,

Sandy

[BHoffman]

Don't be afraid

If your client has the proper substantiation and the tax return results in some EIC for her, then so be it. Pretend like this is going to be audited, for sure and without doubt. Pretend you are an IRS auditor while you are preparing the return. Cover your bases and make a good clean tax return. That way if there is a question, you and the client are ready. If you have done a thorough due diligence on the thing and you have your proof and the substantiating docs, then I don't think we should be afraid to file a tax return for our client. Good luck and let us know what you decide.

[Uncle Sam]

Bartender

Even for a cash job - who today works at the rate of $ 2 per hour?

[erchess]

$2 an hour plus tips

is the most common pay for waitstaff and bartenders in my area. Someone already told OP to make sure the tips are being reported. This adds up to a very good rate of pay for good workers at average to above average establishments. It's even legal as long as it works out to minimum wage or better. I have yet to encounter anyone who got paid in cash under the table but I have heard of such cases. I don't patronize the places that I hear of doing such nonsense.

[MAJ]

$2/hr.. Sounds like a 3rd world country..

A quick google shows NJ waitress minimum wage at $2.13 - $2.18 per hour.
However, it appears their reported wage {hr/wage + tip} must equal minimum wage.

Glad I don't waiter!!

[David1980]

Supposedly if they do not get minimum wage after tips the employer is supposed to provide it. However probably that would just end up with a waitress looking for a new job (and perhaps justifiably, if they can't reach the very low standard minimum wage sets through tips.)