Employee or self-employed?

[Questionguy101]

A question for the tax partitioners on this board.

A household worker received more than $1,500 for her works last year. She should be considered a household worker and her employer should have withheld tax and gave her a W-2 for year 2006. But the employer has done nothing other than just written her a check for the full amount of her pay every month. How'd you prepare her tax return?

I have been told to file a Schedule C for her and report her income there. But by doing so, she will suddenly become 'self-employed' while she should be considered a household 'employee' according to the definition of the IRS. Should a tax partitioner decide that the client should file as self-employed (while obviously she's not self-employed) just because her employer did not withhold tax and give her a W-2?

[Bird Legs]

Employee- W-2

Just gross up her pay for the FICA & M/C taxes paid for her by the employer.
Report this amount in box 1,3&5 on the W-2.
Report the FICA tax in box 4 and the M/C tax in box 6 of the W-2.
Question, forgot to ask, is, what did the employer furnish her, a W-2 or 1099?
Who did the work for the employer? You or someone else?
Another question. Does this person clean houses for other people, if so, she may be
self employed.

[Brad Imsdahl]

If an employee is treated as an independent contractor and the employer will not issue a proper W-2 for the wages earned, the employee has two options:

1) Put the income on a Schedule C, pay SE tax on the earnings, and be done with it.

2) Follow the procedure in TTB, page 5-23 under the heading "Wrong Treatment of Employees as Independent Contractors."

If you pick number 2 above, you run the risk of making the employer mad. Does your client want to lose his/her job over this?

[ChEAr$]

Good advice

If an employee is treated as an independent contractor and the employer will not issue a proper W-2 for the wages earned, the employee has two options:

1) Put the income on a Schedule C, pay SE tax on the earnings, and be done with it.

2) Follow the procedure in TTB, page 5-23 under the heading "Wrong Treatment of Employees as Independent Contractors."

If you pick number 2 above, you run the risk of making the employer mad. Does your client want to lose his/her job over this?

We have an old saying down South: "Never insult the alligators till after you've
crossed the creek."

[CarolToppCPA]

Two choices

I agree with Brad's two choices. Either file a Schedule C or file a SS-8 for the IRS to determine worker status. And I bet the IRS will determine she is an employee and the employer will get a letter asking for back taxes.

If the worker files Sch C she can take some deductions like mileage. A small consolation...

If it were me, I'd go the Sch C route. Without a W-2 it's tough to claim she's an employee.

JHMO,
Carol

[sandysea]

Agree with Carol. Yes, indeed she might have been an employee, but then again, she will lose many of her benefits such as mileage to/from if this was an employer/employee. Did she get a 1099? Many times it is more advantageous for the worker (1500.00 total) to report it as Self employment and take viable deductions from that as a Schedule C and not rely on Form 2106 to try and take unreimbursed employee expenses....

[Questionguy101]

I agree with Brad's two choices. Either file a Schedule C or file a SS-8 for the IRS to determine worker status. And I bet the IRS will determine she is an employee and the employer will get a letter asking for back taxes.

If the worker files Sch C she can take some deductions like mileage. A small consolation...

If it were me, I'd go the Sch C route. Without a W-2 it's tough to claim she's an employee.

JHMO,
Carol

I thought about that too. But for reasons that I absolutely cannot understand, a lot of lenders now will give out a loan to borrowers who are self-employed without even considering their income. What about if the taxpayer turns around and uses the tax return to borrow a loan? If something goes wrong in the future, would they blame it on the tax preparer because he was the one who 'decided' that the taxpayer should file a Schedule C as self-employed?

[ChEAr$]

Choices

I thought about that too. But for reasons that I absolutely cannot understand, a lot of lenders now will give out a loan to borrowers who are self-employed without even considering their income. What about if the taxpayer turns around and uses the tax return to borrow a loan? If something goes wrong in the future, would they blame it on the tax preparer because he was the one who 'decided' that the taxpayer should file a Schedule C as self-employed?

No. See Brad's answer above. You explain the two choices to the client and let him
make the decision.