Taxpayer asks:
I have an employee whose child care center fees just went up. So to take some of the burden off her shoulders we are paying for the rest it adds up to $300 a month. Now-her babysitter is her sister in law who works part time but does babysitting on the side. My employee is not going to pay her using 1099. How can we handle this? So our company can use this as a tax write off and she can properly handle it?
Taxgirl says:
Ooh yuck.
I understand wanting to keep your employees happy. I love my employees, I want to keep them happy. But you can’t get yourself into trouble doing it. So, tread carefully.
You can’t touch offering the babysitter money because you’ll be dragged into this under the table mess. Trust me, as someone who has seen both sides of that mess, you want to stay out of it. As much as you may love your employee, what she’s doing by not reporting income paid to the babysitter is wrong.
I see two options:
1, Offer your employee more money and tell her to use it as she sees fit with the hope that it goes to shoulder the extra burden of increased childcare expenses. You must include this extra income on her form W-2 at the end of the year. But your employee is still ahead.
2, Set up a pre-tax Flexible Spending Account that the employee can use for childcare expenses. It’s still wages but it’s pre-tax so there’s a savings to your employee. There are some limitations, so make sure that you check it out. In this case, the downside to the FSA (which is a great option for most employers) is that I suspect your employee’s babysitter won’t provide her SS number. That won’t stop you from setting up the plan but it may stop her from using it.
It’s a tricky situation because clearly, you want to help. But your employee is causing this to be a bigger problem than it needs to be. So here’s my final advice: don’t make your employee’s problem your problem. It’s not worth it. You don’t need an audit or an investigation into your payroll over a few thousand dollars a year.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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Taxpayer asks:
Hello Taxgirl,
I have a simple, yet complicated tax question. I worked for a company last year for the first 5 months, then for the last 7 months I was self- employed. Do I file two separate forms? Anything you can tell me I will greatly appreciate.
Thank you,
Taxgirl says:
Here’s a lawyerly answer for you: yes and no.
You’ll only need to file one tax return. In your case, you’ll likely need the long form, a plain vanilla 1040.
Report your wages paid by the employer just like normal, using your form W-2, on line 7 of your 1040.
When it comes to your self-employment wages, you’re likely going to want to file a Schedule C so that you can include your self-employment income and deduct the expenses associated with running your business. The Schedule C is basically just an addendum to your 1040 – not really a separate form in the pure sense, but an additional page (check it out here as a pdf).
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl! – Now on Facebook!
Taxpayer asks:
I left my job as an editor at a media company, but continue to do some freelance work for them. When I submitted an invoice, I was told that for tax purposes I couldn’t be paid by them as an independent contractor in the same year that I was an employee. This means those invoices have 45% taken out for withholding taxes, which I assume means they were treated like bonus checks. But they weren’t bonuses, they were my income, and now come tax time, I’m not sure how to account for this on my Schedule C. I don’t know anyone else who has run into this problem–is their policy legitimate or are they just trying to make my life difficult?
Thanks for any advice you may have!
Taxgirl says:
Your company is kind of right. It is possible to be classified as an independent contractor and an employee by the same payor in the same tax year – but it is unusual. The IRS frowns on it because if you’re doing the same kind of work, it’s hard to argue that your status has really changed.
That said, it sounds like the company has chosen to continue to treat you as an employee. If true, you should have received a form W-2 that includes that income and that withholding – include that as normal. If not, then you should have received a form 1099 with withholding reported – include that information on your Schedule C.
If you did not receive any reporting forms, you need to contact the company. If they won’t issue a proper form, then you need to contact the IRS. You may want to read my prior post on the subject.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl!
Apparently not.
It’s rare that I blog about client matters. I like to keep them private for a variety of reasons not the least of which are ethical considerations. But a recent client matter has me steamed. Really steamed. And it’s blog worthy. I’ll keep it generic.
Client had a tax matter that needed immediate attention. IRS Rep #1 advises me, quite candidly, that the current administration is leaning on the IRS to collect outstanding liabilities and despite earlier pledges of a “kinder, gentler IRS”, the marching orders are to take no prisoners, make no deals. Client submits offer with helpful suggestions from rep.
Client’s offer is kicked around for months and months. One rep, different rep, different rep. Finally, specialist steps in. Specialist advises us that our proposed deal is not acceptable and sends us in writing a deal that he claims is acceptable. Specialist even includes specific language for use in our offer and sends us a completed form for signature. More months pass. Nothing.
One day, deal is inexplicably denied by IRS. Adding insult to injury, collection activity immediately resumes for client’s “failure” to resolve the matter.
When we question why this happened, this is the response we get: The IRS cannot be bound by its employees’ actions. And further, while this cost our client time and money, there is nothing further that can be done.
Really?
Unbelievable.
(Yes, quietly contemplating next move but completely floored by IRS’ “ain’t our fault, we just hired the guy” attitude.)
