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rdr
New Member

My daughter was given a 1099 for working as a babysitter in 2015. The family told her she was an independent contractor. So she filed her federal taxes and took an enormous hit when she had to pay for all of FICA as well as the year's worth of federal tax

 
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Opus 17
Level 15

My daughter was given a 1099 for working as a babysitter in 2015. The family told her she was an independent contractor. So she filed her federal taxes and took an enormous hit when she had to pay for all of FICA as well as the year's worth of federal tax

We, yes and no.  Let's say she was paid $100 per week.  As an independent contractor she needs to estimate her taxes that will be owed, both federal and state income and self-employment, set some aside each week, and make quarterly payments to the IRS.  The whole $100 was never hers to spend.  As an employee at (for instance) Walmart, Walmart would withhold 7.65% social security and medicare tax and also a few dollars for state and federal income tax.  Her take home might have been $80 a week.  And Walmart is matching the social security so she really costs the company $108 per week even though she grosses $100.

If she had been treated as a household employee by the family at $100 per week, they would be required to send the IRS social security tax ($15 per week).  They might have offered her $100 per week and paid the full $15 themselves, or they might have offered $100, withheld $7.65 and paid the other $7.65 themselves, or they might have just offered $85 per week.  Household employers don't have to withhold income tax so that still would have been your daughter's responsibility to set aside and save up or make estimated payments.

When you start on a job like this you need to make taxes a part of the negotiations with the employer -- will you be an employee or contractor, and who covers the taxes.  There's no way to know what might have happened if she had been treated as an employee instead.  I think your daughter wasn't setting aside money and got surprised at the end, it's a tough but valuable lesson.

Generally speaking, if the care is in their home on their schedule she is an employee, if care is in her home she is a contractor, but it depends on the situation.  The rules are discussed here.  https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-o...

If she wants to file a complaint with the IRS asserting she should have been an employee, she can file an SS-8 form.  If she is determined to have been an employee, she will get half her self-employment tax back.  (The other half plus the income tax was always owed and it may have been her mistake to not plan ahead.)  Filing the form will likely wreck any future chances of working for that family, though.

For the future, make sure she discusses the employee/independent issue with future potential clients before accepting the job, and consider the cost of taxes when setting her rate, and that she sets aside the right amount of estimated taxes.

Self employed or employee, you never get to spend your whole gross.  There are always taxes, the only issue is who manages their collection, the employer or the self-employed person on their own.


*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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5 Replies
TomYoung
Level 13

My daughter was given a 1099 for working as a babysitter in 2015. The family told her she was an independent contractor. So she filed her federal taxes and took an enormous hit when she had to pay for all of FICA as well as the year's worth of federal tax

You've asked no question so all I can say is that's the way those things work.  If you are a W-2 employee the employer typically withholds income taxes with each paycheck as well as half the associated Social Security and Medicare.  If you're an independent contractor then you typically need to make estimated tax payments quarterly and you are responsible for all the Social Security and Medicare taxes.  That's why independent contractors usually demand a higher wage.

I assume your daughter was being paid on some sort of schedule - weekly, bi-weekly, etc.  She didn't notice that she wasn't getting a payroll stub and that no taxes were being withheld?  The good news here is that your daughter now knows in a tangible way the difference between being a bona fide "employee" vs. being an bona fide "independent contractor."  That said, depending on the relationship between your daughter and the family she was baby sitting for, she very well might actually be an "employee" in the eyes of the IRS, and there are ways to press your case here.
VolvoGirl
Level 15

My daughter was given a 1099 for working as a babysitter in 2015. The family told her she was an independent contractor. So she filed her federal taxes and took an enormous hit when she had to pay for all of FICA as well as the year's worth of federal tax

Here is some reading material……

IRS information on Self Employment….
<a rel="nofollow" target="_blank" href="http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center"...>

Pulication 334, Tax Guide for Small Business
<a rel="nofollow" target="_blank" href="http://www.irs.gov/pub/irs-pdf/p334.pdf">http://www.irs.gov/pub/irs-pdf/p334.pdf</a>

Publication 535 Business Expenses
<a rel="nofollow" target="_blank" href="http://www.irs.gov/pub/irs-pdf/p535.pdf">http://www.irs.gov/pub/irs-pdf/p535.pdf</a>

Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C.  You pay 15.3% for SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  You do get to take off the 50% ER portion of the SE tax as an adjustment on line 27 of the 1040.  The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 line 57.  The SE tax is in addition to your regular income tax on the net profit.

There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Home & Business return....
<a rel="nofollow" target="_blank" href="http://quickbooks.intuit.com/self-employed">http://quickbooks.intuit.com/self-employed</a>


PAYING QUARTERLY ESTIMATES
You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
 
- 2. You expect your withholding and credits to be less than the smaller of:
    90% of the tax to be shown on your current year’s tax return, or
  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
Opus 17
Level 15

My daughter was given a 1099 for working as a babysitter in 2015. The family told her she was an independent contractor. So she filed her federal taxes and took an enormous hit when she had to pay for all of FICA as well as the year's worth of federal tax

We, yes and no.  Let's say she was paid $100 per week.  As an independent contractor she needs to estimate her taxes that will be owed, both federal and state income and self-employment, set some aside each week, and make quarterly payments to the IRS.  The whole $100 was never hers to spend.  As an employee at (for instance) Walmart, Walmart would withhold 7.65% social security and medicare tax and also a few dollars for state and federal income tax.  Her take home might have been $80 a week.  And Walmart is matching the social security so she really costs the company $108 per week even though she grosses $100.

If she had been treated as a household employee by the family at $100 per week, they would be required to send the IRS social security tax ($15 per week).  They might have offered her $100 per week and paid the full $15 themselves, or they might have offered $100, withheld $7.65 and paid the other $7.65 themselves, or they might have just offered $85 per week.  Household employers don't have to withhold income tax so that still would have been your daughter's responsibility to set aside and save up or make estimated payments.

When you start on a job like this you need to make taxes a part of the negotiations with the employer -- will you be an employee or contractor, and who covers the taxes.  There's no way to know what might have happened if she had been treated as an employee instead.  I think your daughter wasn't setting aside money and got surprised at the end, it's a tough but valuable lesson.

Generally speaking, if the care is in their home on their schedule she is an employee, if care is in her home she is a contractor, but it depends on the situation.  The rules are discussed here.  https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-o...

If she wants to file a complaint with the IRS asserting she should have been an employee, she can file an SS-8 form.  If she is determined to have been an employee, she will get half her self-employment tax back.  (The other half plus the income tax was always owed and it may have been her mistake to not plan ahead.)  Filing the form will likely wreck any future chances of working for that family, though.

For the future, make sure she discusses the employee/independent issue with future potential clients before accepting the job, and consider the cost of taxes when setting her rate, and that she sets aside the right amount of estimated taxes.

Self employed or employee, you never get to spend your whole gross.  There are always taxes, the only issue is who manages their collection, the employer or the self-employed person on their own.


*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

View solution in original post

mfdesquire
Returning Member

My daughter was given a 1099 for working as a babysitter in 2015. The family told her she was an independent contractor. So she filed her federal taxes and took an enormous hit when she had to pay for all of FICA as well as the year's worth of federal tax

In a way, your daughter was unlucky.

 

Your daughter was self-employed.  She needed to report her income on her federal tax return and pay the self-employed FICA tax, the medicare tax, and the income tax on her profits.  That's probably what happened, so she really can't complain.

 

Why was she unlucky?  The parents should not have given her a 1099.  You only give a 1099 to someone if you are engaged in a business and pay someone at least $600 for services.  You don't 1099 people you pay for personal services (like babysitters, gardeners, and the like).   (You give a W2 to a regular day nanny, because she is a "household employee").

 

If she didn't get a 1099, she still has to report the income under the law.  As a lawyer, I would advise her to follow the law and report the income.  But if she doesn't, the IRS will never know.  So most babysitters don't.

mfdesquire
Returning Member

My daughter was given a 1099 for working as a babysitter in 2015. The family told her she was an independent contractor. So she filed her federal taxes and took an enormous hit when she had to pay for all of FICA as well as the year's worth of federal tax

 
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