Self-employed or employee?

[ericleve]

This scenario has been bugging me for a while and I would like to get some of your opinions on this.

I have a client who has a 19 year old daughter. The daughter did some babysitting in 2007 and was paid about $5000 for the work. The person paying her was a registered in-home daycare provider, unincorporated. The daycare provider issued a 1099-MISC for the $5000 paid my client. Her reasoning on this was that she did not engage the 19 year old on a regular basis during the year, she basically would call the girl and ask if she could help out that day for a few hours. So she was not classifed as an employee.

Now to my client's tax return. I put the 1099-MISC income on Line 21 because, after questioning the client, found that she is not actively engaged in a daycare business (she is not going out and trying to find other daycare work, she does not advertise or spend any money or effort whatsoever to acquire new daycare kids).

My concern is that no Social Security tax has been paid on this money. (Daycare provider did not withhold SS tax and my client did not pay SE tax). Is this a common occurrence or are we in for a major red flag?

[JoshinNC]

MAJOR red flag

This scenario has been bugging me for a while and I would like to get some of your opinions on this.

I have a client who has a 19 year old daughter. The daughter did some babysitting in 2007 and was paid about $5000 for the work. The person paying her was a registered in-home daycare provider, unincorporated. The daycare provider issued a 1099-MISC for the $5000 paid my client. Her reasoning on this was that she did not engage the 19 year old on a regular basis during the year, she basically would call the girl and ask if she could help out that day for a few hours. So she was not classifed as an employee.

Now to my client's tax return. I put the 1099-MISC income on Line 21 because, after questioning the client, found that she is not actively engaged in a daycare business (she is not going out and trying to find other daycare work, she does not advertise or spend any money or effort whatsoever to acquire new daycare kids).

My concern is that no Social Security tax has been paid on this money. (Daycare provider did not withhold SS tax and my client did not pay SE tax). Is this a common occurrence or are we in for a major red flag?

Somebody needs to pay the SS tax. It would be my opinion, based upon the facts presented, that the young lady was an employee subject to withholding, FUTA, State UI, etc. Is the daycare provider your client? If so let him/her know that you need to go back and do all of the withholding reporting for last year.

IMHO

[solomon]

Red flag if you just put it on Line 21 only. Complete Form 8919 and pay employee portion of PR Tax. Check the box that she filled out a SS-8. Have her complete a SS-8 for mailing.

[Nashville]

Employee

There are several factors involved in the distinction of employee versus non-employee, and regular vs. irregular working periods is just one of them. No single factor can be relied upon.

From the information given, I believe the girl fails most of the tests. She did not provide facilities, has no risk of loss, was not working under the practices of her own special training, etc. I believe when you blow the smoke away, the reason for the 1099-MISC is because the employer did not want to pay FICA and Medicare on her. Other than that, treatment as a non-employee doesn't appear to have much support.

[JON]

Does not work

"Regular Basis" That does not work for anything!!!!!!!!! You may want to work it out with the woman since they live close, before you file paying only halve..

[FEDUKE404]

Where IS that W2 ?

... The daughter did some babysitting in 2007 and was paid about $5000 for the work....

That was some serious baby-sitting!!

This topic has been rattled around a lot on these boards in the past, suggest you check the archives.

Her "employer" is hiding behind a Form 1099-MISC and just does not want to pay the FICA/Medicare/FUTA/SUTA taxes which are due. Retroactive interest/penalties for failing to do so can be very expensive.

(Don't forget to tell the babysitter she needs to pay at least $765 of separate self-employment tax, if you decide to go that route....)

FE

[OtisMozzetti]

The person paying her was a registered in-home daycare provider, unincorporated. The daycare provider issued a 1099-MISC for the $5000 paid my client. Her reasoning on this was that she did not engage the 19 year old on a regular basis during the year, she basically would call the girl and ask if she could help out that day for a few hours. So she was not classifed as an employee.

Where is this in-home care provided, in the home of the "daycare provider" or in the home of the child[ren]'s parents or guardians? If it is in the home of the "daycare provider", that sounds very much like an on-call employee who is called in on those days that a larger staff is wanted. If it is at the home of the child[ren]'s parents or guardians, then the daycare provider may function as a temporary worker agency, and it sounds in the direction of a non-employment relationship.

Yes, I do realize that there are many more factors that determine whether or not the 19-year-old is classified as an employee.