Taxes and Houshold help

The Coffee Shop
1

How many people have a housekeeper or a lawn service? How many withhold SS Taxes? I was always under the assumption that the people that are getting nailed, have full time, or live-in help. I never realized that if you pay household help more than $1600/year, you must pay their SS taxes, that’s only ~30/week.

(1) I’m not sure how I would have know that.
(2) Can’t understand why its different than any other type of contractor, or self employed person.
(3) I would venture to guess that 95% of people that have a house keeper or a lawn service, are “tax cheats” and don’t even know it…

2

We pay a cleaning service. Do they not take care of the SS tax? I’d always assumed they did.

3

I’d assume that if its a service, then it would be different, but it sure is murky and I get why people run into trouble. The key parts of the IRS statute are:

***Household employees include housekeepers, maids, baby-sitters, gardeners, and others who work in or around your private residence as your employees. Repairmen, plumbers, contractors, and other business people who work for you as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but how they do it. ***

But I found these tests for “contractor”. All are true of our cleaners, so what’s the verdict…

The following are some of the common-law tests that may be applicable to a part-time household worker. An independent contractor: Works part-time for any one person.Works for one or more unrelated persons at the same time. Is paid on a per-job basis. Is free to accept or decline assignments. Offers his or her services to the public (such as through advertising). Works in teams, uses helpers or delegates the work to someone else. Uses his or her own tools or equipment. Is hired to produce a certain result (a clean house, a well-groomed garden) and is not given step-by-step instructions for accomplishing the task. Is not trained to perform the services in a particular manner by the person hiring the worker Does not have a continuing relationship with the person hiring the worker.

4

If those tests are true for your cleaners, then they are contractors, not employees, and thus are not subject to withholding taxes by you.

5

There is a massive cash only economy in this country. Lots of trades people, hired help, etc – work only for cash, who knows if they report it.

I guess I assumed people in these positions were self-employed, doing a service for me, not “my” employee, and thus had to take care of their own taxes.

But then I am not wealthy enough to have had to deal with this…

6

That’s what I thought until I read the IRS publication. You don’t need to make that much money in order to be in that boat. For instance, an in your home nanny, even a few days a week would put you over the $1600 limit…

7

Under the tests you list above, though, it would seem the nanny is clearly a contractor.

8

The biggest difference, in my mind, goes something like this: Does your lawn service show up with their own mowers, trimmers, etc? Or does a guy show up and use your equipment? Is it the same person every time? In my mind, there is a difference between “gardener” and “lawn service”.

Do you hire a cleaning person, or a cleaning service? Do they bring their own supplies or use yours? One person, or two? Always the same person?

I think it is pretty clear on the nanny issue. If you hire someone to come into your house on a regular basis, and pay them over $1600 (or whatever the limit is) you need to give them a W-2 and pay employment taxes.

By the way, these questions are asked when you use software to do your income tax return (TurboTax or the like) or is included on the tax questionnaire you should be filling out when your tax professional does your return for you. For the most part, you can pay the employment taxes with your 1040 each year…

9

The housekeeper is an independent contractor…

10

So are the people making the papers using full time (or almost) help? I think that the IRS publication is much less clear than you are making it out to be…

11

So how is that reconciled with the IRS guideline below? At what point does a housekeeper, gardener or babysitter become an “employee”?

***Household employees include housekeepers, maids, baby-sitters, gardeners, and others who work in or around your private residence as your employees. Repairmen, plumbers, contractors, and other business people who work for you as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but how they do it. ***

12

I think it is pretty clear on the nanny issue. If you hire someone to come into your house on a regular basis, and pay them over $1600 (or whatever the limit is) you need to give them a W-2 and pay employment taxes.

OK, but there’s no way the nanny lives on $1600 a year, if he/she only works 1-2 days at your place, then they’re likely to be working somewhere else the other 3-5 days per week. That would seem to make them a contractor based on the “Works for one or more unrelated persons at the same time” rule.

13

(1) I’m not sure how I would have know that.

The only time you would have to pay a house keeper or lawn service is if they are your “Employee”. The only time they would be your “Employee” is if they are not employed by another company offering them as a service and or if they do not qualify as an “Contractor”.

In short the only time they would be an “Employee” is if they are working at your house full time or simply trying to dodge taxes by claiming to be a contractor.

About the only time you “Wouldn’t know” is if they are doing the “Contractor” business and not paying taxes which I would agree get’s really “Dodgy”.

In short the only people that could claim this as a “I didn’t know” would be people that are being lied to. If you have someone working full time at your house, you write them a check directly and not to a company and don’t send them a 1099…you pretty much should know they are your employee.

(2) Can’t understand why its different than any other type of contractor, or self employed person.

See above, it’s not and thus why if you hire a “Contractor” they have very specific rules as to “What is a contractor”. Most people that hire a “Contractor” for a lawn service would not check and may not pay enough to warrant a 1099. OTOH I would think that a “Contractor” that brought their own equipment, worked part time on your lawn and many others could be argued that they are indeed a contractor. But of course the government will come after anyone who will pay the bill :slight_smile:

(3) I would venture to guess that 95% of people that have a house keeper or a lawn service, are “tax cheats” and don’t even know it.

I would agree, but not because of the house keeper or lawn service. If you hire a company that does lawns or cleans houses, you’re not a cheat. If you hire an individual, pay cash under the table…then your a cheat.

That being said I’d guess 95% of everyone inflates their “Charitable giving”, pays someone, baby sitter, handy man, etc cash and neither party reports the transaction. Hell I bet 95% of the people that believe they aren’t “Tax cheaters” are, they just don’t know enough about the tax code to know they are.

Of course I’d bet 95% of people driving a car are in some sort of “violation” as well…I currently have a headlight out :slight_smile:

~Matt

14

The biggest difference,*** in my mind***That’s the biggest issue. I don’t believe that the IRS gives black and white guidance. There is no reason why we should have to read the tea leaves.

FWIW - I just installed TaxCut. Went to the “household employee” section. Clear as mud.

They ask you questions about household employees, but no questions that would differentiate a “contractor” from an “employee”.