Tax issue or nonissue?

May 2, 2012 6:57 AM

I think someone (semi-falsely, read on) wrote that they paid me a nominal amount on their tax return filed this year. I did not file, and did not need to. Several questions about filing, residence, and liability follow, somewhat NYC specific.

-I don't know where my residency is, for one, or where I am liable for taxes. I'm from Washington (no income tax, and so I've only ever worried about federal taxes). I vote in Washington, and my permanent residence is there (I think), but I'm a student nine months out of the year in NYC.

-In NYC, one family I babysat for (once! We're talking double digits here!) called me around April 14 and asked for my SSN etc. There was significant phone tag, so I never actually talked to him, but I asked how he was planning on reporting it (I was surprised that he was reporting at all - I babysit extensively here, and the only other family that pays on the books established that up front, provided me with a W-4, etc.) - I understand that babysitting work does not qualify as the sort of work a contractor would do, but nevertheless I'd like to know if he were reporting it that way. He said that he would "report that they paid me [amount]." I gave him my info over the phone (in retrospect stupidly). I assume that he did not treat me like a contractor (for which I understand you owe on 100% of income regardless of income), but I am not entirely sure. I've also never paid taxes, so I don't even know how reporting this stuff works.

-I was only employed by them this calendar year, so even if I needed to report that, that would happen in the beginning of 2013. I suspect he reported it for last year, based on when he called. I reminded him in my phone message that it had happened this year, but it's possible he missed that/forgot anyways.

-I didn't file this year. I had no income on the books in 2011 whatsoever, and I have not needed to file in past years (made triple digit amounts, no witholding outside of Medicare etc., no worries about state-level junk before this year).

-I'm not sure if I owe any taxes on that income - obviously it comes nowhere near the federal minimum, but it doesn't look like there's a minimum on city-level income tax. If I did owe taxes, that would be next spring - but if he reported it differently, would somebody come after me?

-I'm not sure if I will need to file for 2011. I will make somewhere between $1k-$3k from the one family that pays on the books, and probably (hopefully!) about the same from summer work. My other income (all babysitting or similar) is off the books, and in small enough quantities that I don't feel especially obligated to report it (should I? I mean, I know it's the law, but...).

-If something looks fishy in this situation (I know it's not a lot of money, but I don't know if they enforce official policy uniformly), would the onus be on me to prove that employment occurred this calendar year?

-I never signed any sort of forms for him (1099, W4, nothing). Nor did I receive any paperwork to fill out, or with any information.

-While I'm posting this question, the aforementioned family that pays on the books (legitimately) pays me physically in cash. I have not been keeping track of the exact total. Will they be liable for sending me some sort of stub eventually with the total when tax time comes? This job started right at the beginning of this calendar year, so it's not a concern quite yet.

So, I'm pretty sure I've done nothing wrong legally, and I don't think I would have needed to file even if that income had been made in 2011 (although it doesn't look like the city-level income tax has a filing minimum). Given that I didn't actually talk to the family before filing day, how should I handle this now? They've expressed interest in employing me further in the future, so I would of course like to keep this relationship good. Should I ask him anything, and if so, what? Should I contact anyone else to follow up?

This is so ridiculous! This is not a family of politicians or lawyers or accountants or government employees (like the other family), and this is not a large amount of money (it is with the other family). I was shocked to get that call - I've made more from big political power players and they've never been concerned with taxes. What a pain. This may all be a nonissue, and I apologize in that case, but I'd like to be safe/prepared - worrying about tax on income for which I never received formal paperwork is uncharted territory.

posted by anonymous to Law & Government (13 answers total)

This can probably answer some of your questions.
posted by empath at 7:17 AM on May 2, 2012

It looks like the C-EZ is the form you need to fill out.

Here's the form.
posted by empath at 7:19 AM on May 2, 2012

It sounds pretty clear that you're not filing all the taxes you're legally obligated to. Even if you don't make enough to owe income tax, you still owe self-employment taxes. This idea you have that you can earn thousands of dollars and be entirely exempt from paying taxes is incorrect. I'm not making a moral judgement here, but what you're doing is definitely illegal. It may be common, and it may be that political bigwigs engage in this sort of practice, but it's illegal. I have no idea how likely it is that you'll get caught, but the fact that this family is reporting what they paid you (so they can take a deduction for child care expenses) probably makes it more likely.
posted by jon1270 at 7:21 AM on May 2, 2012 [3 favorites]

Make sure you deduct all your expenses -- gas, etc... you should keep receipts for everything, but there's approximately 0 chance the IRS is going to audit you, so just claim everything you can think of, receipt or not.
posted by empath at 7:26 AM on May 2, 2012

Well...I'd be less worried about your tax liability and more worried about why the guy needed your SSN to report a small under-the-table payment. That is weird, especially since you do not know what he reported. If (worst case scenario) he is using your SSN etc. in some kind of fraud scheme, you will probably want to know the details about that.

If you really make as little as you say you do, the people above seem nitpicky in my opinion. You should still file at least a 1040 though - you might be missing out on tax credits for which you are elligible. For the past couple of years I have been making very little income (with varying degrees of appropriate paperwork) and I just file it all anyway. Two years in a row my refund check has been larger than I anticipated because the IRS was like, "you are bad at math and also broke; here are the extra credits to which you are entitled don't spend it all in one place."

But yeah, find out what's up with the former client. And if you are going to be stressed out about taxes, just try to get a basic record system in order. If nothing else, it will be good practice for when you have a more formal income.
posted by newg at 7:32 AM on May 2, 2012 [1 favorite]

By the way, even if you're not obligated to file because your income is too low (less than $400, I believe, is the limit), you should file anyway, because you very well may be owed a refund. Especially as a student, there are lots of tax credits and deductions that apply to you. I had income of a few thousand dollars last year, all of it untaxed, and I'm getting nearly a grand back because of tax credits I'm entitled to in virtue of my low income and student status. Seriously, go into one of the free tax software programs (go to www.irs.gov and follow a link to make sure you don't have to pay for the software) and plug in your data. You may be surprised at how much you're entitled to.
posted by decathecting at 7:33 AM on May 2, 2012 [1 favorite]

It may be against the law for your employers to treat you as a contractor. I'm not sure of the Federal rules, but in Massachusetts you are specifically not allowed to treat domestic help as contractors and give them a 1099. You have to treat them as full employees, withhold taxes from their paychecks, etc.

This rule is designed to avoid the very situation that you are in. The burden is specifically placed on the people employing the domestic workers rather than on the workers themselves.

It's possible your employers had a last-minute conversation while working on their taxes and decided that they shouldn't be paying you under the table. It's crummy of them to foist that on you after the fact, and I believe it violates the tax code. So in addition to screwing you they are screwing themselves.

All that said, I don't know what to recommend as a next step. There may be advocacy groups in NYC that help domestic workers in situations like this. Since they've already filed it can't be undone, but I think it would be fair for them to cover all the additional costs involved, including paying any self-employment tax that you owe. It was their responsibility to pay that, not yours.
posted by alms at 7:40 AM on May 2, 2012

You babysat for them once, and made less than $100?
Ignore it.
posted by chickenmagazine at 7:42 AM on May 2, 2012 [1 favorite]

Actually, the family is trying to do the right thing. It may seem ridiculous to you, but it's much better for all involved to keep everything on the up-and-up. Here's why:

1. The family may be claiming the Child and Dependent Care Credit for the amount they paid you. (That's my guess why they asked for your social security number.) and/or,
2. They are reporting you as a household employee and need to pay employment taxes (fyi: not the same as income taxes) on what they paid you. However, you say that you earned less than $100 from them. They do not have to worry about paying the employment tax if you earned less than $1800 or if you are under the age of 18. But maybe they don't realize that.

If you are interested in learning more about these topics, see:
Child and Dependent Care Credit: http://www.irs.gov/taxtopics/tc602.html
Household Employer's Tax Guide: http://www.irs.gov/publications/p926/ar02.html#en_US_2012_publink100086722

I think you should file tax returns for 2011 and 2012 - as mentioned above, as a low-earner, you are likely entitled to way more than you owe. Also, it'll be good practice and education for you. You seem very upset by this and I think it's because you're just not familiar with the processes. Also, I highly recommend you track all your payments and hours worked, method of payment, families' names and numbers, etc, just in case there is some funny business down the line somewhere.
posted by stowaway at 7:56 AM on May 2, 2012 [2 favorites]

Stowaway's scenario 1--that they simply need your SSN to claim the childcare credit--is vastly more likely than that they are reporting their payment of wages to you as an employee.
posted by drlith at 9:07 AM on May 2, 2012 [1 favorite]

I'm sorry - upon reflection, I think my answer may not be helpful enough for you since you're really not sure what to do. I cannot speak to the NY State/NYC specific aspects since I know nothing about that part. But here's what I think you should do:

1. Read through those two pages I linked to above so that you can understand the tax issues related to your line of work. Those pages are for the taxpayer who pays the babysitter, not the babysitter. They can claim a childcare tax credit for what they paid you, even if you don't meet the definition of a household employee. (These two things are separate from one another.) It's useful for you to know this information so that you can understand why or why not you receive certain forms.
2. Call the family, be polite, and ask them what they did. It's likely that they don't even know how to explain what they did. They might be defensive if they think you are pressuring them to pay extra taxes or something (as people often get funny and irrational about taxes). Just tell them you want to make sure that you have everything correct on your end. Ask them if there are forms they need to issue you. Reiterate that the work was performed in 2012, not 2011. They might have to take some time to figure out what they did.
3. If they screwed up their own tax return, that's their problem, not yours. Your own tax returns should accurately reflect your income for the tax year. You don't have to adjust your tax returns to fix their mistake.
4. You can call the IRS for guidance if you need more help. They can be very helpful. Contact info here.

Alternatively, you could just let it go. I mean, it might weird out the family if you have all these tax questions and they think you are more trouble than you are worth, so I understand if you'd rather preserve that economic arrangement rather than dot all your i's and cross your t's. I doubt the IRS is going to come after you, but, you never know.

Regarding the other family who pays you "on the books": yes, you should expect a "stub" from them, in the form of a W-2 form. You should get that by the end of January 2013 - if you don't have it by then, start bugging them for it.

Don't let anyone "1099" you for babysitting. Either they do it properly, or they don't do it at all! The IRS makes it so clear how withholding taxes works for household employees, so there's no excuse on their end other than cheaping out on the employer's half of employment taxes.

As I wrote above, you should definitely track your hours, pay, and so forth on your own. Professional businesses louse this up all the time, and I can say from experience, the bigger the business, the more room for error. So it is good practice for the future, to keep a sharp eye on your paychecks and tax forms. (A common scam of scummy businesses - they withhold employment/income taxes/401k contributions from the employee's paychecks, keep some or all of it for themselves, and issue an incorrect W-2, so the employee loses out. So keep all your stubs and check against your own records!)

[p.s., although the IRS is no longer allowed to go on "fishing expeditions" (aka, harassing taxpayers through ridiculous audits), don't follow empath's advice to just "deduct" everything you can think of. The burden is on you to maintain records, and although we're are discussing tiny amounts, I'd really hate to see anyone develop bad habits that lead to hot water later on. Keep records and receipts, and determine what your allowable deductions are based on those, if you are claiming self-employment income.]
posted by stowaway at 9:26 AM on May 2, 2012 [1 favorite]

I didn't say to make anything up, just that even if you don't have receipts, claim the deductions anyway. But, yes going forward you should save receipts.
posted by empath at 9:55 AM on May 2, 2012

Yep, it really sounds to me like they probably just wanted the information so they could claim the Child and Dependent Care Credit. You have to have the care provider's address and SSN, and then you get 20%-35% of what you paid back as a credit-- not a lot for the tiny payment to you, but it adds up, so they probably make it a point of asking everyone. (Here's another related form, parents can send it to providers or they can just ask for address and SSN: http://www.irs.gov/pub/irs-pdf/fw10.pdf)
posted by EmilyClimbs at 3:00 PM on May 2, 2012