A tough question

What is the name of your state? California

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?

The IRS decides if a taxpayer is self employed, not a tax practitioner. It is not enough that the taxpayer worked in the home & earned over $1500. There is a 20-part test to determine whether someone is an employee or independent contractor. It boils down to how much control the 'employer' exerted over when the person worked, how they did their job, what other clients they had, etc. A housekeeper who works every day from 8 am to 4 pm is probably an employee. One who works 3 days a week & has 15 other clients is an independent contractor.

That said, the taxpayer can either accept the situation and file a Schedule C & claim expenses, or can report the money on line 7 as wages. You file Form 4137(?) Tax on Tip Inocme & cross out "TIPS" & write in "WAGES" above it. This way the taxpayer pays only 1/2 the employment taxes. The taxpayer can also file Form SS-8 requesting a determination from the IRS as to whether s/he is an employee or independent contractor. Then the taxpayer should look for another job, since s/he'll probably be fired for going to the IRS.

abezon said:

One who works 3 days a week & has 15 other clients is an independent contractor.

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I would have to disagree with this statement...(well, I'd ask that it be qualified):

If my housekeeper comes to my house for 2 hours a day, 3 days a week and says "what would you like me to do today?", to which I reply "use the vacuum cleaner in the closet and vacuum the kids' rooms, then get the broom and clean the kitchen - that's all we need done today", then said housekeeper would be an employee, regardless of how many other "employers" she had.

Zigner said:

I would have to disagree with this statement...(well, I'd ask that it be qualified):

If my housekeeper comes to my house for 2 hours a day, 3 days a week and says "what would you like me to do today?", to which I reply "use the vacuum cleaner in the closet and vacuum the kids' rooms, then get the broom and clean the kitchen - that's all we need done today", then said housekeeper would be an employee, regardless of how many other "employers" she had.

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I respectfully disagree. If I call up Merry Maids (a cleaning service) and contract with them for someone to clean once or twice a week, based on my specific instructions, that isn't hiring an employee. Just because someone is an individual, in business for themselves, doesn't make them an employee any more than the person that Merry Maids would send out.

The person's intent to be in business for themselves is also a factor in the equation. Otherwise, no one could ever be in business for themselves without setting up a separate business entity.

Re-read what Zinger wrote. I believe it was written carefully with common-law principles in mind. While there could be other exceptions (like traditions and practices in the industry), I believe the person under his example would very well be an employee. If a client came in with these facts I would advise them to use a schedule H.

(I don't think you necessarily get the same person from Merry Maids each time and believe they bring in their own equipment to do the work.)

Yes - I was just pointing out that the word "probably" should have been used in both examples given by Abezon.

tranquility said:

Re-read what Zinger wrote. I believe it was written carefully with common-law principles in mind. While there could be other exceptions (like traditions and practices in the industry), I believe the person under his example would very well be an employee. If a client came in with these facts I would advise them to use a schedule H.

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Assume that the maid is your client but the one who paid her is not. How do you use a schedule H on the tax return of the maid?

A schedule H is inappropriate for the employee. It is designed for the employer. The employee in your situation cannot really make things right. Things are "wrong" and can't easily be "right." Anything you do is only an attempt to pay things owed. I like the way abezon gave. If I were to spend some time in research I might find something different.

You see, either the maid is an employee or an independent contractor. In this case she wants to pay taxes as though she is an employee even though the "employer" wants to pay her as an independent contractor. The government is going to be minus some taxes if this happens. They don't like that. The maid can pay the employee and employer's portion of the taxes (which I think is too much) or pay just her portion (Which is legal, but there needs to be some explaining and will certainly cause her to anger the employer.). Which door do you choose? There is no door number three.