Paid under the table

[erchess]

A client who is single and has no dependents has a W2 reporting about 4.5K of wages and when I pressed her on how she survived on that she said that she gets food stamps and worked two jobs under the table earning a total of $3836. When I initially did the return I put the wages on line seven but examination of the return indicated that they were increasing her EIC and not being subject to SE Tax. Furthermore since both of the jobs were working for businesses and she was not in prison I can't indicate that they were household employee or prisoner wages. Is line seven the right place or should I go for Sch C or at least line 21? Put another way should this money increase eic or be ignored and increase her social security and medicare tax or be ignored?

[ttbtaxes]

A client who is single and has no dependents has a W2 reporting about 4.5K of wages and when I pressed her on how she survived on that she said that she gets food stamps and worked two jobs under the table earning a total of $3836. When I initially did the return I put the wages on line seven but examination of the return indicated that they were increasing her EIC and not being subject to SE Tax. Furthermore since both of the jobs were working for businesses and she was not in prison I can't indicate that they were household employee or prisoner wages. Is line seven the right place or should I go for Sch C or at least line 21? Put another way should this money increase eic or be ignored and increase her social security and medicare tax or be ignored?

If she lied to me once, I wouldn't rely on anything she said. She'd be toast and out the door.

[ChEAr$]

A client who is single and has no dependents has a W2 reporting about 4.5K of wages and when I pressed her on how she survived on that she said that she gets food stamps and worked two jobs under the table earning a total of $3836. When I initially did the return I put the wages on line seven but examination of the return indicated that they were increasing her EIC and not being subject to SE Tax. Furthermore since both of the jobs were working for businesses and she was not in prison I can't indicate that they were household employee or prisoner wages. Is line seven the right place or should I go for Sch C or at least line 21? Put another way should this money increase eic or be ignored and increase her social security and medicare tax or be ignored?

First determine whether or not you are comfortable with this client.

If so, and she wants to do the right thing, it looks like a job for SS8 form.

Hmm, can a personal with no children even get food stamps?
Remember to use the EIC worksheets and go into detail on her situation. Chances are your software has all the right tools within.

[Gary2]

Either Schedule C or Form 8919.

There's no requirement to have children to qualify for food stamps. But the undeclared income could put her above the eligibility limits.

[taxea]

I would inquire more about what type of work she is doing that she is being paid under the table for. Who is the employer? If she is a contract employee then the employer is in violation for not issuing a 1099. Since he/she is paying cash he/she is guilt of tax fraud. Once all of this is explained to the TP if she doesn't choose to be forth coming I would send her packing and report the business.

[erchess]

She didn't lie

If she lied to me once, I wouldn't rely on anything she said. She'd be toast and out the door.

I asked her for her W-2 and she gave it to me. I asked about her other sources of income and she told me. It's true she didn't volunteer anything I didn't ask about but a truth unspoken is not a lie.

I know about SCH C and F 8819 but what is form SS8?

I've done her for several years now and she's always appeared to me to be honest as she does now. She has two children. She claimed one one year but the boy lived with his father the other years and the second boy lived with his father all years. The other years she presented enough W-2 Wages that I didn't ask about other income. This year there was little enough on her W2 that I asked about other income and she told me. I'm not putting her whole story here but I do believe her. She doesn't want to tell me the names of the under the table wage payers because in her mind she made a deal and ought to stick with it. I plan to tell her that she has only two ways forward if she wants me to do her return. She can file an 8819 and pay an employee's share of Fica and Medicare while potentially getting her employers in trouble or she can file a SCH C and pay both shares of Fica and Medicare. And by the way I will watch this thread for an explanation of what form SS8 is to see if that changes anything about the options I will lay out for her. Thank you all for your help. You have stiffened my backbone. If I had not posted here I would have filed her under the table wages as W2 wages paid without W2 and let them increase EIC without triggering SE Tax.

[KBTS]

I know about SCH C and F 8819 but what is form SS8?
.

Form SS-8 is for determination of worker status; i.e. the form you submit to the IRS to have them investigate the proper classification of employee vs. contractor. Google SS-8 to see the form.

[BP.]

Whatever you decide, it sounds like there will be some unreported (by the payer) income that will be used as the basis for qualifying for some EIC. A member here talked about his experience with penalties concerning that. Good idea to be sure you and the client keep proof of the income.

[Gary2]

I asked her for her W-2 and she gave it to me. I asked about her other sources of income and she told me. It's true she didn't volunteer anything I didn't ask about but a truth unspoken is not a lie.

I know about SCH C and F 8819 but what is form SS8?

I've done her for several years now and she's always appeared to me to be honest as she does now. She has two children. She claimed one one year but the boy lived with his father the other years and the second boy lived with his father all years. The other years she presented enough W-2 Wages that I didn't ask about other income. This year there was little enough on her W2 that I asked about other income and she told me. I'm not putting her whole story here but I do believe her. She doesn't want to tell me the names of the under the table wage payers because in her mind she made a deal and ought to stick with it. I plan to tell her that she has only two ways forward if she wants me to do her return. She can file an 8819 and pay an employee's share of Fica and Medicare while potentially getting her employers in trouble or she can file a SCH C and pay both shares of Fica and Medicare. And by the way I will watch this thread for an explanation of what form SS8 is to see if that changes anything about the options I will lay out for her. Thank you all for your help. You have stiffened my backbone. If I had not posted here I would have filed her under the table wages as W2 wages paid without W2 and let them increase EIC without triggering SE Tax.

There is a variation on both of these, which is to simply not claim the EIC. With no dependents, it won't be much. The justification is that the undocumented income presumably can't be substantiated with written records of any sort (bank deposits, etc.) Under the circumstances, one may choose to give it a worst-case treatment, i.e. pay the taxes but claim no immediate benefits. In theory, the Social Security contributions are also a benefit, but they create a catch-22 for which you have to pick something.

Part of the issue is whether refusal to identify the payer makes the return "incomplete" in a substantive way. There's no requirement that a Schedule C filer include the names of all payers, and in many cases (e.g. items sold at retail), it's not even reasonable. But in this set of circumstances, I'd be concerned about whether the omission of the names makes the return incomplete with regard to the EITC due diligence requirements. Of course, the "incomplete" issue applies even in cases where EITC isn't in the picture - but the degree of diligence is less.

As for the SS-8, you'll discover that the 8919 essentially requires that the SS-8 be filed in this case.

[JG EA]

Whatever you decide, it sounds like there will be some unreported (by the payer) income that will be used as the basis for qualifying for some EIC. A member here talked about his experience with penalties concerning that. Good idea to be sure you and the client keep proof of the income.

If that's the case and the client doesn't want to reveal the source - what about line 21 (if that doesn't raise EIC.

[FEDUKE404]

Good riddance

A client who is single and has no dependents has a W2 reporting about 4.5K of wages and when I pressed her on how she survived on that she said that she gets food stamps and worked two jobs under the table earning a total of $3836. When I initially did the return I put the wages on line seven but examination of the return indicated that they were increasing her EIC and not being subject to SE Tax. Furthermore since both of the jobs were working for businesses and she was not in prison I can't indicate that they were household employee or prisoner wages. Is line seven the right place or should I go for Sch C or at least line 21? Put another way should this money increase eic or be ignored and increase her social security and medicare tax or be ignored?

Now I know why I DON'T miss dealing with certain types of clients....

Personally I would bid a fond "adieu" to this client, especially with visions of Form 8867 swirling in my head. It makes you wonder what else you are not being told.

Of course, if she worked the summer putting up vinyl siding I guess you can likely skip the Schedule SE? That would save her a few bucks.

And then, you could always report her ! (Whoops...that thread has already been removed...NEVERMIND....)

FE

[Gary2]

If that's the case and the client doesn't want to reveal the source - what about line 21 (if that doesn't raise EIC.

No. The client's refusal to identify the source doesn't convert either wages or self-employment income into other income.

[taxea]

The TP and "employer" willingly (I didn't say knowingly) engaged in a conspiracy to commit tax fraud. Her consequence at the moment is to do the right thing and properly report the income either on a Sch C or a sub W-2 and SS8. The employer will be dealt with by the IRS and she will not suffer further IRS consequences of not filing properly.