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Cindy M
Returning Member

Tax Advice

I receive a 1099 for work i do as a side job. I have taxes withheld,  but I also pay someone else, in cash, half of the income I receive, to help me do this job.  Are they required to also pay taxes on the cash they receive? And do they have to report it to the IRS?

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DaveF1006
Employee Tax Expert

Tax Advice

Yes, but you will still need to issue them a 1099 NEC if you paid them over $600. You will issue the 1099 NEC in your name and social security number and then you will be able to deduct the amount you pay them.  This is called a contract labor expense and you would report this to offset some of the income on your 1099 NEC.

 

Once they have the 1099 NEC issued from you, they can then report the 1099 NEC on their own personal tax return. Please view this IRS link for instructions on filing the 1099 NEC.

 

Here is a link you can use to create your 1099 NEC to give to your helper.  Keep in mind, when you file it, you would use your own name as the name of the business and your social security number to create the business profile. Once the profile is complete, you can issue the 1099 NEC to your helper. You will need their Social Security Number to complete the 1099 NEC.

 

 

 

 

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9 Replies
MayaD
Employee Tax Expert

Tax Advice

If they are required to file a return, they need to report all income. 

 

Per IRS:

Who must file:

Most U.S. citizens or permanent residents who work in the U.S. have to file a tax return.

Generally, you need to file if:

It might pay you to file even if you don’t have to.

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Cindy M
Returning Member

Tax Advice

I simply want to know if they are required to pay taxes on already taxed income? I work for a cleaning service part time and pay someone to help me from my own pocket but the money I received has already been taxed for federal, social security and Medicare. I understand that they are required to file for their income. My question is to decide if we need to have them paid directly from the company to avoid double taxes on that same income or are they safe from taxes considering it was already taxed. 

Vanessa A
Employee Tax Expert

Tax Advice

Yes, they are required to pay taxes on the income that they receive that you are paying them, however, you should not be paying your own personal taxes on that money as it should be deducted from your actual income. 

You should issue the person you are paying a 1099 (if they are not considered an employee) or if they are an employee, then you should issue them a W-2.  If you give them a W-2, then you would be responsible for payroll taxes as an employer and deducting their FICA taxes from their wages as well.  The amount you pay them will then be deducted what you receive as part of your self employed expenses.  You will then only pay your Medicare, Social Security and federal taxes on the amount you actually keep which is your net profit.  

 

Taking Business Expense Deductions

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Cindy M
Returning Member

Tax Advice

I don't own the business, the taxes are deducted during payroll from the actual company, prior to me getting paid. It's paid out the same way as my regular job is, which I receive a W2 form from. The only difference is I get a 1099 NEC from the part time cleaning job and that is what is taxed. 

DaveF1006
Employee Tax Expert

Tax Advice

Yes, but you will still need to issue them a 1099 NEC if you paid them over $600. You will issue the 1099 NEC in your name and social security number and then you will be able to deduct the amount you pay them.  This is called a contract labor expense and you would report this to offset some of the income on your 1099 NEC.

 

Once they have the 1099 NEC issued from you, they can then report the 1099 NEC on their own personal tax return. Please view this IRS link for instructions on filing the 1099 NEC.

 

Here is a link you can use to create your 1099 NEC to give to your helper.  Keep in mind, when you file it, you would use your own name as the name of the business and your social security number to create the business profile. Once the profile is complete, you can issue the 1099 NEC to your helper. You will need their Social Security Number to complete the 1099 NEC.

 

 

 

 

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Tax Advice

@Cindy M   If your pay has already been taxed for federal, Social Security and Medicare then you should be getting a W2 not a 1099NEC for yourself.   If you get a 1099NEC that is self employment and you file it on Schedule C.  Then you can expense what you pay other people as Contact Labor.  And  You will pay Self Employment tax (Scheduled SE) on a Net Profit of $400 or more on Schedule C in addition to regular income tax on it.   You pay 15.3% SE tax on 92.35% of your Net Profit (If it is 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 if they take taxes out of your pay and you report it on Schedule C you will be paying tax on it again.  

Tax Advice


@Cindy M wrote:

I simply want to know if they are required to pay taxes on already taxed income? I work for a cleaning service part time and pay someone to help me from my own pocket but the money I received has already been taxed for federal, social security and Medicare. I understand that they are required to file for their income. My question is to decide if we need to have them paid directly from the company to avoid double taxes on that same income or are they safe from taxes considering it was already taxed. 


Your information is conflicting and does not make sense.

 

If you are paid as an employee on a W-2, and you use some of that money to hire a helper, then they are required to pay income tax even though you also paid tax.  And you can't deduct the expense.   This is also a really dumb thing to do.  They are self-employed (as your subcontractor) and are required to file a self-employment tax return, even if they don't get tax paperwork.  It is not clear if you need to issue a 1099-NEC in this case because it is not clear that you are acting as a business.

 

If you are paid for a side-gig and receive a 1099-NEC, you are self-employed, at least for that side-gig.  If you hire a helper, then you either have an employee (to whom you must give paychecks, and a W-2) or you have a subcontractor.   If you hire someone as a subcontractor, you pay them, and you issue a 1099-NEC to them if you pay them more than $600 in a year.  You report your side gig as a self-employment business, and you can deduct the payments to the helper as a business expense, so they are not taxable to you, only to the helper.

Cindy M
Returning Member

Tax Advice

That's interesting information but it's definitely a 1099NEC (forgot to mention that before) and they take out all those taxes. That's why it was so frustrating last year trying to do my taxes and then trying to input their info instead of mine. I'm not sure what the deal is but they pay everyone that way as far as I know. They have been im business for years and their contract is with the federal government. Thanks for your response.

Tax Advice


@Cindy M wrote:

That's interesting information but it's definitely a 1099NEC (forgot to mention that before) and they take out all those taxes. That's why it was so frustrating last year trying to do my taxes and then trying to input their info instead of mine. I'm not sure what the deal is but they pay everyone that way as far as I know. They have been im business for years and their contract is with the federal government. Thanks for your response.


If you are paid as an independent contractor, you receive a 1099-NEC at the end of the year.  It looks like this.

https://www.irs.gov/pub/irs-pdf/f1099nec.pdf

 

The client who pays you can withhold federal and state income tax (shown in box 4 and 5), but they can't withhold social security and medicare tax.  You must report your self-employment income on schedule C.  You list all your gross income, you can subtract any ordinary and necessary business expenses, and you pay tax and self-employment tax on the net profit.  Any withholding is only an estimate of the tax you might owe and you must file a schedule C and form 1040 to calculate the actual tax you owe. 

 

If you pay a helper, that is one of your ordinary and necessary expenses.  It subtracts from your income, so you don't pay tax on it.  But the helper must report the income and pay tax, and you must issue the helper a 1099-NEC from you to them, if you pay them more than $600 in a year.  Some versions of Turbotax can help you e-file a 1099-NEC or you can do it at other online companies for a few dollars.  You need the helper's social security number. 

 

I don't understand "That's why it was so frustrating last year trying to do my taxes and then trying to input their info instead of mine."  You file your own tax return only.  You include payments to them as a business expense.  That's all, unless you are using Turbotax to issue the 1099-NEC.  In that case you should only need their names address, SSN and amount paid. 

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