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 2nd 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”
