Domestic employer has unreported employees for 3 years now

[mammondee]

Hello to all,

I have a client that just learned she is a "domestic employer". She is 86 years old failing health, and diminishing cognitive abilities. One of her "helpers" just filed un-employement on her, and it has opened a can of worms. She has never reported any of her "helpers", she does not have an employer identification number or any account with the unemployment commission. She honestly did not know she was responsible for any employer reporting. In her words, "None of the other old ladies that have helpers have to do this"!

After inquiry, I have determined she has had "helpers" since before 2014. Her daughter has researched and found the check dates and amounts to the "helpers" paid in 2014 and 2015. (The bank's online data base did not go further back then 2014.) Most of the workers made enough that they would be subject to unemployment reporting. In 2014 and 2015, she had about 16 helpers. She can only get the address and social security number for three of the individuals. The other 13, she never knew their address, and has lost or thrown away their phone numbers. One current employee will not return to work because my client has asked for her social security number, and the helper will not provide it.

I don't know how to proceed. If she goes back and reports 2014 wages.....to both the employment commission and the IRS, she does not have any of the ten addresses or social security numbers, and claims she can not get them. She only has necessary information for three of six 2015 workers.

How should she be advised?

[TaxGuyBill]

Wow. I've never dealt with this, but this is what I THINK the "proper" way to do it is: File the 941s and 940s, and the employer will pay the full 15.3% for employer taxes (plus FUTA). The W-2/W-3s should be filed with whatever information that she has (names) and expect a penalty of $100 each for no ID number (and because it is really late).

Because she is older, you may be able to claim "reasonable cause" to get the penalties reduced or waived.

https://www.irs.gov/pub/irs-pdf/p1586.pdf

The only other alternative I can think of is to build a case that they were really Independent Contractors.

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

[Jiggers]

Whoa! Don't file 941's or 940's. You file Schedule H. It is a stand-alone form that can be filed without attaching to the 1040. It has to be signed.

She will have tremendous penalties for not filing 941's and 940's.

I would also attempt to go the self-employed route. Especially if these domestic employees worked for others!

[TaxGuyBill]

Thanks for the correction about the 941s to Schedule H. I had already spaced out the part that they were Household Employee when I started my answer.

[mammondee]

Whoa! Don't file 941's or 940's. .......
She will have tremendous penalties for not filing 941's and 940's.

I would also attempt to go the self-employed route. Especially if these domestic employees worked for others!

I'm confused because you say to NOT file 941's or 940's, but then say "She will have tremendous penalites for not filing 941's and 940's.

I do agree that Schedule H will work for the amounts due. However, I am most concerned with the lack of information for W-2's and unemployment taxes.

Also, I believe NONE of the gals working for my client were self employed. The Unemployment office has determined the one they know about (the one that filed) is an "employee".

[Jiggers]

If she files 941's and 940's late, there are significant penalties.

I think she is better off filing the Schedule H. Check the instructions for filing Schedule H which is where domestic employees labor and taxes are reported.

[S T]

Will be Schedule H for Federal - Based on 2015 Instructions - if qualified Household Employee needs to be filed if that person (household employee) was paid $ 1,900 or more of cash wages.

See IRS Pub instructions for Schedule H (Form 1040) household Employment Taxes

Look to your State reporting - that is probably the biggest issue - as your state will more than likely want the Unemployment fund contribution

Sandy

[mammondee]

Look to your State reporting - that is probably the biggest issue - as your state will more than likely want the Unemployment fund contribution

Sandy

Actually, the state unemployment office SEEMS to be the least of the clients worries....They do want the Unemployment contribution and indicate a $50 per quarter late filing penalty for the last two years....= 7 quarters late x $50 = $350

The IRS on the other hand I am very worried about. The late filing penalties for the W-2 is $100 each.....ten 2014 W-2's filed late = $1,000
plus incorrect or missing TIN's 13 x $100 each = $1,300
Plus penalty and interest on amended return including schedule H amount due.....?

[taxea]

I am with determining whether they can qualify as independent contractors before I would get into 940 or Sch H. I also agree with gathering documentation in support of a reasonable cause argument.
At the same time gather all documents needed for both 940/941 and Sch H in case you end up needing them.
Did she deduct the expenses on Sch A in the past?

[mammondee]

None of the 16 workers appear to qualify as independent contractors. The unemployment commission has determined the one they know about (the one that filed) is an employee, and has requested the employer (my client) file the necessary paperwork to open an account.

I can't imagine a reason a 941 or 940 would be required. Am I wrong.

The client has never filed any 1099's or deducted any expenses associated with these workers on her tax return.

Now my question is if I can file the 2014 Schedule H by itself, or if the client's 2014 1040 needs to be amended to include the schedule H.

[Lion]

You can file Schedule H by itself with a signature. You also can amend to deduct her medical expenses. File W-2s. And, file the appropriate forms for her state.

Put the daughter to work tracing the employees. Agency? Who recommended them? Did they fill out job applications? Mail W-4s to last known address, return receipt requested. I put "refused" for SSN and keep documentation of attempts to get info. Again, have the daughter research -- or charge for your work.

[TXEA]

This is not as difficult as it seems. So, I recommend the following:

First, stop worrying about what you don't have.

File Schedule H for the years of employment. Have your client pay the employee's share of SS/Med and add that amount to box 1 wages on the W-2. This is allowed for domestic employers. If your client can pay the taxes due, have her pay them. If she can't pay them, send what she can.

Prepare the Forms W-2 with what you have (don't worry about not having SSN's or addresses). Just file the W-2's. For 2015, get as many SSN's as you can. She may be penalized, so be it.

Soon, all the dust will settle, and you will get some IRS notices. Your client is 86 and bad health - try to get the penalties abated. You probably have a better than even chance if you explain your client's situation. If any taxes are owed, then request an installment agreement request or OIC (if applicable).

Get the taxpayer advocate involved if the IRS provides no relief.

Finally, if the daughter you mentioned is the person who wrote the checks to these workers, you might prepare her for the possibility of a trust fund recovery penalty.

[TaxGuyBill]

I just want to emphasize what somebody else had mentioned: For any employees that earned less than $1900, a W-2 and employer taxes do not apply.

Also, I think that your client who is "86 years old failing health, and diminishing cognitive abilities" will qualify for the "reasonable cause" for not doing this, and avoid the late filing penalties.

[FEDUKE404]

Dealed with unemployment tax issues a problem?

I just want to emphasize what somebody else had mentioned: For any employees that earned less than $1900, a W-2 and employer taxes do not apply.

Also, I think that your client who is "86 years old failing health, and diminishing cognitive abilities" will qualify for the "reasonable cause" for not doing this, and avoid the late filing penalties.

Well, kinda. . .

Check lines C and 9 , and then Part II, of Schedule H.

Whether you can or cannot make the FICA/Medicare go away is one thing. But dealing with FUTA/SUTA shortcomings is an entirely different matter. . .and it could be painful to re$olve.

Another point to note: It may be a stretch to consider all of the "employee" expenses paid as qualifying medical expenses. More facts would be needed to clarify that issue.

FE

[Rapid Robert]

"After inquiry, I have determined she has had "helpers" since before 2014. Her daughter has researched and found the check dates and amounts to the "helpers" paid in 2014 and 2015. (The bank's online data base did not go further back then 2014.) "

This seems like a big problem, both for the missing tax year(s) prior to 2014 and the argument that she has diminished capacity. How many years back does that go, how was she able to find, hire, and pay these workers on her own? It seems one should be able to get bank records more than just two years back.