Test Return #4

[PIGLEE]

Yes, I added 1/2 of the fica & medicare to the wages 2070 + 159 to equal 2229 in taxable wages. I did a lot a research on this many years ago, I had several people who hired live in help, because they did not want to go to a nursing home. Had many discussions with IRS (yes I know they are not always right). I was wanting to gross up the wages, and they said NO, you need to add it to the wages, does not make to much of a difference. But I did not know that the income tax wages, and the fica wages would be different. When this test came up I checked in The Tax Book to see if I had remembered it correctly, I found the information on page 14-1(at the very bottom). It does not say anything about the wages and fica wages would be different. It says that "" Any amount paid by the employer is added to the employee's taxable wages on form W-2. "Employer payments" are not added to Social Security and Medicare wages, and are not subject to FUTA" When they say "employer paid" I am thinking 1/2" because the employee really had it deducted from her taxable pay. She is being taxed on the cash and the FICA. I looked at Pub 926, and I don't see anything different from The Tax Book.

[JG EA]

If the employer pays the employee's part of the SS and Med it is added to line 1. Line 3 and 5 of the W-2 have the original wages paid. Otherwise you'd have an endless gross-up loop.

[PIGLEE]

Thank you JG !!

[Bees Knees]

If the employer pays the employee's part of the SS and Med it is added to line 1. Line 3 and 5 of the W-2 have the original wages paid. Otherwise you'd have an endless gross-up loop.

TTB page 23-9 has a worksheet for the gross-up computation when the employer pays the tax for a taxable benefit of the employee. That can be used for employer paid FICA as well. Except for the fact that there is a special rule that says employer paid FICA for a household employee is exempt from FICA and FUTA. Thus, the gross-up is not needed.

Any other taxable benefit should use that gross-up computation worksheet, such as employer paid moving expenses where the employer pays the employee's share of the tax.

[S T]

Another learning curve

Well I have to say Bees, thank you once again - The test #4 again challenged some of us and once again you did do an excellent job at presenting the answers. I also, like many that have posted, appreciate your time and effort that you are placing into presenting these various "Test Scenarios" I find them to be an excellent exercise and also a future source of reference with the Test Examples, something that we don't always find in the normal course of CPE Credits!.

I am thinking that I agree with Snags assessment, in that, we probably don't ask enough questions of our taxpayers, to discern this particular scenario

Client would just tell us they have paid a "babysitter." If both spouses worked, I probably would not counter with a question as to why, or whether it was for social conviviality or so that both spouses can work. I will admit that I probably should, but I suspect most of us do not.

Then you would also have the scenario wherein you have a "babysitter" for "qualified" child care (both parents work related) and that same babysitter also was there for the "nights/weekends out". Another due diligence for "us as preparers" to educate the t/p to make notations -- i.e--work related and personal. And then how do we handle that? on an overall percentage? Most t/p's in the position I would guess would have already exceeded the child care limit - so might not be a factor.

All of the above don't take into account the other factors - is the babysiter or other HH employye under 19 or over 19, etc, etc.

Also, clients who would produce a date "log" showing amounts paid by date are really few and far between. Before I knew whether to asses FUTA, technically I would have to know the statistical parsing of these payments, and the clients would simply not have this ready.

As I stated in a prior post on Test #4 - I knew the first answer probably wasn't correct at the $2,471 as it was just too easy. I could not figure it out for 24 hours - until I went all the way through TTB and then "bingo" the light went on for the Household Employee and I think I must have dreamt it overnight.

At least as Don Priebe posted-none of us posted the refund including the child care credit to the t/p for the higher refund .

Bees, keep us on our toes!

Sandy

[Bees Knees]

I’m still curious as to thoughts on the household employee vs. independent contractor issue. Does the fact that Kathy baby sits for others in the neighborhood automatically make her an independent contractor? Or do you agree with me that more is needed to claim IC status?

[Larmil]

She is an employee IMO

I’m still curious as to thoughts on the household employee vs. independent contractor issue. Does the fact that Kathy baby sits for others in the neighborhood automatically make her an independent contractor? Or do you agree with me that more is needed to claim IC status?

Bob and Mary determines when she works. They furnish the workplace. They furnish the necessary supplies. They have the right to direct and control how the work is done.

[Corduroy Frog]

Employee

The TN Dept of Labor would classify her as an employee. If she panhandled at 5th and Main, she would be your employee, according to them.

They are, of course, aggressive and capricious. Often I work in people's homes, at their appointed time -- only difference being they are not trained to do what I do. I think there is a case for the young lady being self-employed. If this 19-year old were my client, and none of these people furnished her a W-2, and she furnished me her baby-sitting receipts, I would file a schedule C.

[Gretel]

I’m still curious as to thoughts on the household employee vs. independent contractor issue. Does the fact that Kathy baby sits for others in the neighborhood automatically make her an independent contractor? Or do you agree with me that more is needed to claim IC status?

Well, first of all, we take your words like coming from the bible.

I also agree with with employee status. Most of the babysitters I do tax returns for, you get a 1099 though.

[Larmil]

Well, first of all, we take your words like coming from the bible.

I also agree with with employee status. Most of the babysitters I do tax returns for, you get a 1099 though.

I think the key thing with the IRS that Bob & Mary "have the right to direct and control how the work is done." It is different from other people (plumbers etc) that work in a person's home.

[Bees Knees]

I also agree with with employee status. Most of the babysitters I do tax returns for, you get a 1099 though.

Only a business has to issue a 1099 to an independent contractor. A couple hiring a babysitter would not issue a 1099 assuming they are treating the babysitter as an independent contractor.

Which brings up another interesting twist. The Section 530 Safe Harbor rules for treating a worker as an independent contractor require that the payer issue a 1099 to the worker.

In our case, Bob and Betty did not issue a 1099 to Kathy, because even if she were an IC, they are not required to issue 1099s. Except that without issuing a 1099, they can't use the Section 530 Safe Harbor rule if they want to take the position Kathy is an IC.

Thus, one more reason why Kathy is a household employee.

[Gretel]

You are so right. The two recent clients I was thinking about took care of other people (only this one person, not services offered to anyone else, one of them a high school student) but it was run through an agency.

[Bees Knees]

Well, first of all, we take your words like coming from the bible.

I'll give God credit for that knowledge.

(I don't want to get eaten up by worms...Acts 12:21-23 )