Sch C & EITC

[KumarB]

Client has the following
W-2 Income of approx $8,000.00
She also works as a housekeeper for a doctor in NYC. but did not receive a 1099
2 dependents
receives public assistance.
She will qualify for EITC

She brought in a signed and dated letter on docs letter head stating she cleaned his home 3 days a week for a total of 10 hours at 9.00/hr.
Also a summary/log of money earned on a monthly basis which matches the doctor letter after calculation.
This is not a business - she has no business license, no separate business account ....
Would this letter be sufficient enough to report income on Sch C which would increase her refund????

[taxea]

She may not think she has a business but she does have a business cleaning the doctor's home. Because this is his personal residence he does not have to issue 1099 but she has to report the income on a Sch C.

[FEDUKE404]

Schedule C or employee ?

She may not think she has a business but she does have a business cleaning the doctor's home. Because this is his personal residence he does not have to issue 1099 but she has to report the income on a Sch C.

Actually, the doctor might have to give her a W2 as a household employee. . .and deal with unemployment insurance, and workmen's comp, and whatever.

(I'm not quite clear as to how much money the doctor paid her for 2014.)

The signed/dated letter from the doctor sounds extremely fishy, and really does not carry a lot of weight.

And I bet she is gonna be quite surprised when you figure the Sch SE tax she owes.

FE

[Bob McCoy]

She doesn't need a business license or separate bank account to be a business.

[Grace]

Will there be a NY return?

If so, I know first hand that NY scrutinizes SCH C/EITC and especially those listed as housekeepers. Will have to provide supporting documents. If this applies, check out the NYS website at www.tax.ny.gov.
There is some specific material pertaining to SCH C/EITC claims. NY is much more diligent then the Feds.

Also, if she is NOT a NY resident, she MAY have to file a NY Non-Resident return reporting her NYC self-employment income. No NY EITC for non residents.

Grace

[ttbtaxes]

Also, in some states, house cleaning is a taxable service for purposes of sales tax. So the person may be liable for sales tax, failure-to-file penalties, failure-to-register penalty, and more.

[taxea]

does she clean his house or does she care for his kids and provide services while there like cooking, cleaning etc. One is a 1099 the other requires a W-2. Again if she just cleans house or babysits that would be providing a personal service that may not require a W-2 and definitely does not require a 1099.

[Corduroy Frog]

Works for EIC if valid

Nothing in the presentation disqualifies this taxpayer from receiving EIC as long as the information is valid. The doctor statement
could be a forgery, her story might be flawed, etc. But if everything is valid, she qualifies for EIC.

Another question which is asked of the self-employed is whether the income is sufficient to support the taxpayer and household.
$8,000 won't support her anywhere in America, especially NY. You might consider a statement to disclose child support, disability,
rent subsidies, or other non-taxable income.

[FEDUKE404]

My vote remains W2 needed

does she clean his house or does she care for his kids and provide services while there like cooking, cleaning etc. One is a 1099 the other requires a W-2. Again if she just cleans house or babysits that would be providing a personal service that may not require a W-2 and definitely does not require a 1099.

The original post mentioned the term "housekeeper" as well as three visits per week for a total of ten hours.

That sounds like MUCH more than mere "cleaning" to me.

Absent further information, I see the situation where the good doctor should be providing a W2 (agree no 1099) to her. Of course, by not doing so he is avoiding significant expenses to himself. Where things could get interesting is if the "employee" either files for unemployment or gets injured at his place and makes a Workmen's Comp claim. Then there will be some questions to ask and the doc could face some serious penalties (one person I know faced that, and had to repay employer's share of Soc Sec/unemployment tax/workmen's comp tax plus interest plus penalties....don' t remember if penalties were double or triple the sum of those amounts).

As for the comment about living on $8k in the NYC area, we already know there is a W2 for $8k, perhaps another $5k ($90/week?) or so from the doc, and she also "receives public assistance."

The simplest of answers is that "YES" she could use the doctor's payments (whatever they are) to boost her EITC benefits. Having said that, there is likely much more to this (and other similar) EITC story. I wonder if she has, in the past, even "bothered with" filing any NY state or city returns. Hmmmm. . .

I have earlier chosen to leave the EITC returns to the big box stores, and I have lost zero sleep over that decision.

FE

[Golden Rocket]

Not Your Dog

This customer walks in and claims to be a housekeeper, and submits a statement from the doctors' letterhead to confirm.

Are you saying she doesn't qualify for EIC because the doctor has not issued a W-2?

It is not the doctor but the housekeeper who has come to you for tax preparation. All of your arguments in favor of a
W-2 are valid, but it is the doctor's responsibility to issue one and HE is not your client.

The housekeeper wants taxes prepared and has come to you. Do you refuse to prepare her return because:
1) You don't do returns for customers with EIC
2) The doctor has not given her a W-2
3) You are suspicious the letter from the doctor is not authentic

The lack of a W-2 is the doctor's problem. Let him answer to the IRS or State unemployment folks if he is ever
questioned. How do YOU approach your client in the real world?

[Burke]

does she clean his house or does she care for his kids and provide services while there like cooking, cleaning etc. One is a 1099 the other requires a W-2. Again if she just cleans house or babysits that would be providing a personal service that may not require a W-2 and definitely does not require a 1099.

I believe it would be a W-2 whether it is babysitting or housecleaning as she does this work in his home. Unless she holds herself out to be in business, with all the appropriate licenses, and she also does this work for other parties.

[FEDUKE404]

Simple answer

This customer walks in and claims to be a housekeeper, and submits a statement from the doctors' letterhead to confirm.

Are you saying she doesn't qualify for EIC because the doctor has not issued a W-2? <<<---NO. Please reread my response.

It is not the doctor but the housekeeper who has come to you for tax preparation. All of your arguments in favor of a W-2 are valid, but it is the doctor's responsibility to issue one and HE is not your client.

The housekeeper wants taxes prepared and has come to you. Do you refuse to prepare her return because:
1) You don't do returns for customers with EIC <<<---Quite possibly, except for long-established clients.
2) The doctor has not given her a W-2 <<<---Schedules C/SE or line 7, Form 1040 might be an issue for an accurate tax return. . .
3) You are suspicious the letter from the doctor is not authentic <<<---Authentic or not, of little relevance if IRS asks questions

The lack of a W-2 is the doctor's problem. Let him answer to the IRS or State unemployment folks if he is ever questioned. How do YOU approach your client in the real world?<<<---I have zero problems telling clients with certain potential filing issues that I cannot prepare their taxes.

DUE DILIGENCE and/or potential $500.00 fine for lack of same.

Peace.

FE

[kathyc2]

This customer walks in and claims to be a housekeeper, and submits a statement from the doctors' letterhead to confirm.


The lack of a W-2 is the doctor's problem. Let him answer to the IRS or State unemployment folks if he is ever
questioned. How do YOU approach your client in the real world?

It appears that the client should have been treated as a household employee. From my calculations she is paying about 300 more in SE tax than she would have if a W-2 had been issued. IMO, that information should be given to client and then leave it up to her if she wants to approach doc to have her employment appropriately handled.

[David1980]

The housekeeper wants taxes prepared and has come to you. Do you refuse to prepare her return because:
1) You don't do returns for customers with EIC
2) The doctor has not given her a W-2
3) You are suspicious the letter from the doctor is not authentic

The lack of a W-2 is the doctor's problem. Let him answer to the IRS or State unemployment folks if he is ever
questioned. How do YOU approach your client in the real world?

I do returns with EIC and don't panic over it. I can't imagine the low number of EIC returns I do is enough to interest the IRS in really doing an EIC compliance audit so the $500 per return doesn't bother me that much, plus I'd like to think my due diligence is satisfactory and I wouldn't be subject to the penalty. When I hear of people with EIC compliance audits it's usually high volume offices that preparer a high percentage of EIC in their practice.

That the doctor has not given her a W-2 and the suspicious letter would cause me to look for additional documentation. That whole bit about making reasonable inquiries if the information furnished appears incorrect, inconsistent, or incomplete. I'll admit, I might be indirectly encouraging them to go elsewhere by requesting more documentation than the tax shop down the road would. Great documentation would be copies of the deposited checks from the bank so that's what I'd ask for. Sure, could be forged as well but whatever.

The doctor not providing a W-2 does get into that whole 8919 vs. Sch C question. I think I've only ever prepared an 8919 once because most taxpayers don't want to cause issues for their employer by filing an SS-8. But obviously when EIC gets involved there's other considerations as well. For example if they take expenses on Schedule C that increase EIC where that would be on a 2106 if they were an employee. I'm not sure which way I'd go there - do I force them to file the 8919/SS-8 or do it on a Schedule C?

[DonPriebe]

... I wonder if she has, in the past, even "bothered with" filing any NY state or city returns. Hmmmm. . .

What? And give up on the NY EIC?