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Posted by Clueless in Seattle on September 16, 2008, 9:16 pm
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A friend of mine earns money during the week by caring for the
children of family and acquaintances in her home. As far as I know
the arrangement is informal and I don't think she has a daycare
license.
On the weekends she works doing housecleaning for acquaintances.
In both cases she is paid in cash, and has never bothered to keep any
kind of records. But she estimates that she earned around $6000 in
2007.
Toward the end of 2007 her immigrant husband received papers from the
government which permitted him to join a construction union and begin
working in the U.S. However, since he didn't start working until the
year was nearly over, he didn't earn enough to qualify for the
Stimulus Package tax rebate program. In fact, he earned so little,
that he will receive back all of the withholding tax he paid in 2007.
They filed for an extension so their joint tax return is due on
October 15.
They're wondering if the cash earned from daycare and housecleaning
would qualify them for a rebate.
If so, where on the 1040 would it be entered, and what kind of
documentation, if any, would be required?
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Posted by D. Stussy on September 16, 2008, 10:46 pm
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> A friend of mine earns money during the week by caring for the
> children of family and acquaintances in her home. As far as I know
> the arrangement is informal and I don't think she has a daycare
> license.
>
> On the weekends she works doing housecleaning for acquaintances.
>
> In both cases she is paid in cash, and has never bothered to keep any
> kind of records. But she estimates that she earned around $6000 in
> 2007.
>
> Toward the end of 2007 her immigrant husband received papers from the
> government which permitted him to join a construction union and begin
> working in the U.S. However, since he didn't start working until the
> year was nearly over, he didn't earn enough to qualify for the
> Stimulus Package tax rebate program. In fact, he earned so little,
> that he will receive back all of the withholding tax he paid in 2007.
>
> They filed for an extension so their joint tax return is due on
> October 15.
>
> They're wondering if the cash earned from daycare and housecleaning
> would qualify them for a rebate.
>
> If so, where on the 1040 would it be entered, and what kind of
> documentation, if any, would be required?
On Schedule C.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by removeps-groups@yahoo.com on September 16, 2008, 11:05 pm
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On Sep 16, 6:16 pm, Clueless in Seattle
> A friend of mine earns money during the week by caring for the
> children of family and acquaintances in her home. As far as I know
> the arrangement is informal and I don't think she has a daycare
> license.
That could be an issue with the state employment agencies, but the IRS
won't care about these. They do want FICA, FUTA, and federal taxes.
> On the weekends she works doing housecleaning for acquaintances.
>
> In both cases she is paid in cash, and has never bothered to keep any
> kind of records. But she estimates that she earned around $6000 in
> 2007.
If she is a household employee, then:
She is required to pay the employee portion of FICA, otherwise known
as social security and medicare tax, which is 7.65% net. She also
needs to pay federal income tax. However, her income is so low that
federal tax will be zero. In addition, she may also have state and
city income tax.
In addition, the households where she works need to pay household tax
and federal/state unemployment insurance. This is on Schedule H. The
household tax is basically the employer's portion of FICA, which is
7.65%. Most likely the state has unemployment tax as well, and so
they need to pay this too. If they pay state unemployment tax, then
the federal unemployment is reduced. The maximum FUTA (federal
unemployment tax) is around $450, though it will be about $372 in her
case.
So one scenario is that the employer reduces her income by 7.65% and
$372 to pay their portion of social security and FICA. And she pays
the remaining amount. So the net FICA paid is $918, and net FUTA is
$372 -- so about one sixth of her income goes into taxes.
Be aware that paying FICA gives you quarters of credits, and once you
have 40 credits and are past a threshold age or disabled, you can
start collecting benefits.
But since she works for so many people, she may be an independent
contractor. In that case she has to pay all of the FICA tax (15.3%)
and no FUTA.
> Toward the end of 2007 her immigrant husband received papers from the
> government which permitted him to join a construction union and begin
> working in the U.S. However, since he didn't start working until the
> year was nearly over, he didn't earn enough to qualify for the
> Stimulus Package tax rebate program. In fact, he earned so little,
> that he will receive back all of the withholding tax he paid in 2007.
Nevermind. As long as they have earned income above a $3000, they
should get at least $300. However, if she chooses to not pay the FICA
tax for this year, and not file a return, then she can't get this
$300. Be aware that you have to pay, though the chance of getting
away at this income level is high. But the husband probably had taxes
withheld at his job, so he should definitely qualify for the $300.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Mark Bole on September 18, 2008, 1:30 pm
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removeps-groups@yahoo.com wrote:
>> A friend of mine earns money during the week by caring for the
>> children of family and acquaintances in her home. As far as I know
>> the arrangement is informal and I don't think she has a daycare
>> license.
>> On the weekends she works doing housecleaning for acquaintances.
>>
>> In both cases she is paid in cash, and has never bothered to keep any
>> kind of records. But she estimates that she earned around $6000 in
>> 2007.
>
> If she is a household employee, then:
Doesn't sound like it.
> But since she works for so many people, she may be an independent
> contractor.
Obviously that's not the only criteria, but it's a big one. Sounds like
she decides who to work for and how much to charge.
> However, if she chooses to not pay the FICA
> tax for this year, and not file a return, then she can't get this
> $300. Be aware that you have to pay, though the chance of getting
> away at this income level is high.
There is not a choice to not pay FICA allowed under tax law. She/they
are required to file assuming at least $400 net self employment income,
even if there is no taxable income. Moreover, they have already filed
an extension and will not get back any withholding due as a refund
unless they file. They should only sign a complete and accurate return.
> But the husband probably had taxes
> withheld at his job, so he should definitely qualify for the $300.
The fact of withholding was given in the original posting. How does
having taxes withheld equate to qualifying for the rebate? Further, the
normal amount for MFJ would be $600, not $300. But is the husband a
non-resident alien? He "received papers" allowing him to work in this
country just recently.
In any case, the rebate is a 2008 tax year credit, so if they don't meet
requirements for 2007 but do this year, they will still get it.
Several other key points deserve mention.
First, her day-care clients will need her SSN if they want to claim
child/dependent care credit.
Second, the profit from the day-care activity should correctly account
for the office-in-home expense (day-care rules).
Third, more than just the stimulus rebate, it also sounds like Earned
Income Credit is a strong possibility for these would-be taxpayers.
-Mark Bole
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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