Filing as a household employee

[jjj333]

This past year I have worked as a private caregiver for a couple of different families. This has been strictly through word of mouth and under the table. I was just doing what I had to do to make money and wasn't even thinking how it would effect me at tax time. I have been paid by personal check and I don't think the families are planning on reporting it. I'm not sure what I should do now. I know exactly what I have brought home as my check is the same every week. I was reading that I shouldn't file as self employed but rather as a household employee. I have always worked at jobs that provided a w-2 and always claim earned income credit when I file. The bulk of my refund is earned income credit and I'm afraid I won't have that to rely on this year because of my "under the table" jobs. How do I go about all of this? I have nothing to hide and have no issue giving the names of the people I have worked for. I want to report my income and do it correctly. But what if the families don't do their part? I'm totally lost and don't know where to start. I've never been in this position before and I'm afraid of being in some kind of trouble with the IRS. Does anyone have any experience with this situation or advice? 

[rjs]

For any families that each paid you less than $2,100 for the year (2019), just add up the amount you earned and report it as household employee income. Anyone who paid you less than $2,100 for the year is not required to report anything. You just report the income on your tax return, and it will count as wages for the Earned Income Credit.

If any one family paid you $2,100 or more they are required to issue a W-2 to you. You should contact them and ask them for a W-2. You can refer them to IRS Publication 926, "Household Employer's Tax Guide." They can download the 2019 edition from the following link on the IRS web site.

Publication 926, Household Employer's Tax Guide (2019)

If any employer who paid you $2,100 or more refuses to give you a W-2, you could report the income as household employee income, the same as if it were less than $2,100. You might get an inquiry from the IRS, but it's the employer's responsibility to issue the W-2, not yours. You are reporting the income honestly, the best way that you can.

Keep good records of how much you earned from each employer, and the employers' names and addresses, in case the IRS asks you for more information. Keep those records until April 15, 2023, or 3 years from when you file your tax return, whichever is later.

[Hal_Al]

The IRS considers undocumented cash income (no W-2 or 1099-MISC), for work performed, to be self employment income. Enter at "Business Income & Expenses"**  and TurboTax (TT) will complete Schedule C or C-EZ for you and allow you to deduct any expenses associated with this income. You'll also have to pay self employment tax (social security & medicare tax) on any profits greater than $400.

The “Nanny Tax” specifically refers to the social security & medicare tax paid on a household employee’s (nanny, maid, baby sitter, care giver, gardener etc.) wages. The most proper way to report your income would have been for your employer to have given you a W-2. In practice, this is seldom done . That having not been done, the 2^nd best choice is for you to report it as self employment income on schedule C, paying your own social security tax & medicare tax (FICA) on schedule SE.  Even if they had given you a W-2, and did withholding, you would still had to pay the employee share of FICA.  As a self employed person, you will pay an additional 7.65% more tax on your income, than a W-2 employee does

If the Household employee wages  were from more than one employer and no single employer paid your more than $2100, you may be able to avoid the self employment tax. But, you will also not get credit for these wages with the Social Security Administration, for future benefits.

In TurboTax, enter at:

 Federal Taxes

Click on Wages and Income

Scroll down to Less Common Income

On Miscellaneous Income, 1099-A, 1099-C click the start button

On the next screen click the start button on Other Income not already reported on Form W-2 or Form 1099

Answer Yes on the next screen and continue the interview until it completes.

TurboTax puts the amount on line 1 (wages) of form 1040 (line 7 prior to 2018) with the notation “HSH”. It is considered earned income.  If you do not meet the $2100 exception, TurboTax will also produce form 8919 to pay your share of the FICA tax

**You may have to upgrade to the Self Employment version of TT. If you have no expenses to deduct, There's a chance you may be able to use TT Deluxe or Premier. Enter your income at the 1099-Misc screen (even if you didn't get a 1099-misc). You do not need the payer's ("employer's") Employer ID Number (EIN).

In TurboTax (TT), enter at:
- Federal Taxes tab

 - Wages & Income

Scroll down to:

   - Other Common Income

      -Income from Form 1099-Misc

When asked why you got the 1099-Misc, select “Freelancer or Independent contractor”

[Carl]

This past year I have worked as a private caregiver for a couple of different families.

Just be aware that if you report the income as a household employee, those who paid you will have a good chance of being audited if they did not withhold taxes from your pay and send those withholding's to the IRS on at least a quarterly basis. Weather they get audited or not, depends on how much they paid you for the entire tax year.  Your "employer" may have been required to pay from their own money a "match" on some of the taxes they are required to have withheld. So if any of your customer's fall into this and get audited, they could be required to pay their share as well as some fairly hefty penalties.

Whereas if you report the income as self-employment income, then it is "you" that will pay the self-employment tax of 15.3% (in addition to your regular tax) to the IRS. Then nothing gets questioned and nobody has high audit risk.

In some cases, if your customers had done things right from the start, they most likely would not have had to pay their share of the tax on your pay, in the same amount other W-2 employer's do.