Friday

Taxes and the Independent Contractor

Received Friday, October 8, 2010
Opinion 4 I'm about to accept a new position and I have a question about tax issues. My last two jobs paid on the books but I'm considering accepting a position with a family who wish to pay under the table. I'm going to continue to pay my taxes, but instead of having W4s to account for my income, I suppose I'll be filling out a different form now (perhaps a 1099?) as I'll be considered an Independent Contractor.

My question is: How do I report income without naming it's source? Or, if I must name the source of the income, how will that affect my new employers.

I'd really appreciate information/advice from nannies who've paid taxes without W4s or employers who have paid their nannies off the books but known about how those nannies then handled their tax situation.

Thanks!

(I know this will bring up a lot of righteous indignation about tax fraud. Believe me, I understand how you feel, but this post is about the reality of my current situation, not about life in a perfect world.)

15 comments:

Someone said...

you can't report income without naming the source, so, if you wish to pay your taxes, this is not the job for you

Dear Abby said...

As a Nanny, you do not have to act as an Independent Contractor...you are in fact an employee of the family. If you want to work under the table, then you cannot claim this as your income at all, it would be wrong to do so w/out telling the other family of your intentions because then they would get in trouble w/the IRS. It must be 100% off the books. If you want to pay taxes and declare your income, then do the right thing and let the family know and if they agree, great..if not, then this will not be the job for you.
Good Luck OP!!~

Bostonnanny said...

Honestly if your gonna accept this job, then be under the table and only accept cash(no checks).
I've never filed a 1099 but I think you should say you worked for a bunch of different families that each paid no more then 1700 in one year because that's the cap before they illegally have to start paying part of your taxes. The problem with doing this is that you can get caught, and you end up screwing yourself and the family you work for.

The only safe option is to hold out for a tax paying family, if you can't then just stay under the table until you find one.

Village said...

The definition of an Independent contractor does not include an employee reporting to work at the same place everyday.

The least of the issue is your paying both sides of social security and reporting the income source.

Do you really want to work for someone who is willing to break FEDERAL TAX LAWS which can result in fines and jail time? Do you want to work for crooks? If they are willing to lie, cheat and steal, how do you expect them to treat you?

Nanny Boo said...

I agree with Village, you are NOT an independant contractor. It is simple, the right thing to do is put you on the books. This way you ALL avoid breaking the law or creating massive issues down the road (i.e. claiming unemployement, you fall and get hurt, the list goes on.) Look, they are the employer, you are the employee the family needs to provide a W-2 end of story. But if you have been claiming income for years and fall off the radar you also put yourself in risk.

If you want to pay taxes then maybe this is not the job for you. Honestly, for the family to claim you as an employee it costs THEM a lot of money (FICA, MEDICARE, State, and Federal,) and responibility (withholding wages for taxes, paying into unemployement, disability insurance,) that they may not want to deal with, hence why this line of work is often under the table. I know you need the job, but you should never have to do something you are not comfortable with.

Keep us posted!

tc said...

I file as self employed. Since I also babysit for other familes on my off time that was the easiest option for me.

The first year I only worked a couple of months as a nanny so I didn't have to pay anything. The 2nd yr I had to pay a big chunk of change and the 3rd yr thanks to buying a car I broke even.

Its a hassel to file as self employed and you'll have to pay a big chunk in april doing it that way unless you pay throughout the year.

Phoenix said...

You can report it as a 1099 MISC. However when you do that the IRS will notice that you are getting paid. And your employer is required to send in a 1099 as well. If they want to pay you under the table you can report it but chances are you are going to get your employer in trouble.

What I would do (if you want to pay the gov't) fill in a 1099 you are a contractor and you can take deductions. You will then be able to set up a sole-proprietorship company and the 1099 is your company income. Then you can complete a schedule-c and take deductions such as unreimbursed expenses, your car miles ect. I don't know why your employer wants to pay you under the table. Well I know. maybe because if they chose to pay you by W4 and W2 they would be required to pay employment taxes. If they give you a 1099 they will not be required to pay such taxes. YOu will be required to though. Ask them why

Sorry that was way more information than you need. Ask another tax question and see what happens LOL.

A said...

Actually, I do have another question I thought you guys could help me with. I was going to email it it, but then lo and behold, here's one very similar, so I'll just tack it on the end. (Sorry OP, for stealing your thunder!)

What's I'm considering doing is taking two part-time jobs--one at a daycare and one as a nanny. The nanny job would only be 12-15 hours a week and the parents want to keep it under the table. I've always been a full-time nanny and paid all my taxes and gotten a W2 but I was wondering since I'll be working for a company and getting a W2 from them, do I really need to bother filing taxes from the nanny job? Would it be considered "acceptable" to get cash for the nanny job or would I still be in danger of an audit?

Full-time nanny jobs are very hard to come by in this town right now, so my attitude of "wait for the perfect employers who want to obey the law" isn't working out so well.

nannywhopaystaxes said...

A - If you don't claim income, you're committing a crime and are in danger of being caught. If for any reason you're audited, they will find out that you worked the nanny job and you will have to pay back taxes as well as penalties. Whether it's worth the risk is up to you.

jamie said...

A- I do this, and of course their is risk. Just get paid in cash and deposit the money only if you have too. the truth is that you prob don't make enough for the IRS to actually wonder where the money comes from. I know many nannies on this site will freak out and say its against the law, wait for a family but sometimes you can't.

Think of all the waitresses/bartenders that don't claim all their tips. I know because I was both for years and a nanny during the day. I haven't been audited and its been 8 years.

You are still paying taxes with one job, so it doesn't look like your unemployed and magically getting paid. The one down side is that your ss when your 65 won't reflect the actual income you made, so create an IRA and deposit as much as you can each year. your'll get all the other benefits from your daycare job.

If your married you could just say your husband supports you.

Maybe more parents should be held liable for hiring nannies and not paying taxes, just like businesses should be held liable for hiring illegal immigrants. Enough isn't done to stop this and it puts professional nannies is awkward situation, be unemployed for months until you find a job or settle.

So people can't take the high road because working at a target for $8 an hour won't pay the bills until you find a decent job.

A said...

Thanks Jamie, that's pretty much what I'm going to do. I heard back from the mother this afternoon and she does want me to start this week. It's only a flippin' $100 a week so I hate to "lose" any amount of that because I don't have a teaching job yet. (Still interviewing, ugh.)

I'm also hoping this situation is going to be "in the meantime" and when full-time nanny jobs start opening up again, I don't have to skirt the laws because it is already making me feel guilty.

nycmom said...

I'm an employer and agree with everyone. Nannies cannot be independent contractors under any circumstances. This has been definitively established by the IRS in court rulings.

The only possible way to do this (which is still illegal, but practical and skirts the issue) is to claim you work as an IC as a HOUSEKEEPER, NOT a nanny. You report working for several different families. This way you do not have to provide any information on your employers.

As OP said, I too realize this is not legal and prefer no flames. It is one practical solution which is what OP requested.

IRS link said...

I'd suggest reading:
http://www.irs.gov/publications/p926/ar02.html#d0e303

Personally, I've always put my extra babysitting income on a 1099-MISC.

But that isn't much.

When you're talking about a nanny income, you've got to get the family to do it right.

You *CANNOT* be an independent contractor. You're a household employee under the LAW.

Lila said...

We pay our nannies as employees but I know other families that pay theirs as independent contractors. You will end up paying more taxes since you must pay the employer portion of the employment taxes. It's not a good deal for nannies and I recommend you keep looking for a better employer.

payroll maven said...

I would suggest you not get paid under the table. Especially if you are working for the family for an extended period of time. You are losing out on paying toward your social security and medicare. There are a lot of payroll companies that can help your employers pay the correct taxes for hiring you as a nanny. I have found GTM payroll services to be very helpful and they give free consultations. The website is www.gtm.com. I don't think it is a good idea to promote the under the table pay. It is nice to have the money but in reality you are promoting the trend of people avoiding paying taxes.