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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29558
Experience:  Taxes, Immigration, Labor Relations
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my elderly mother-in law pays me and my wife to care for her(mow

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my elderly mother-in law pays me and my wife to care for her(mow lawn, shop, bathe, etc). I want to report the earnings as income(no more than 4000 per person) so that we can get the earned income credit(we previously receive each year but this year we have no earned income-both get social security disability. what would be the best way to report the income?

According to your information - your income should be classified as self-employment income.

It should be reported on th schedule C or schedule C-EZ, and

will be subject of self-employment tax - 15.3%

 

If you and your spouse each have net $4000 self-employment income -

your estimated self-employment taxes will be $1130

minus earned income credit $457 (if you do not have any dependents)

minus Making Work Pay credit - $460

and your net tax liability will be $212

 

Please also be aware that if you are on disability and will receive earned income - your disability benefits might be affected.

Let me know if you need any help.

 

Customer: replied 6 years ago.
we have two dependant children and what about mother in law does she have to pay any taxes?we would have a total of 7500 (about between the two of us me and my wife)

With $7500 gross self-employment income and two dependents (assuming they are eligible for EIC) - here will be your estimate:

your estimated self-employment taxes will be $1060

minus earned income credit $2798 (if you do not have any dependents)

minus additional child tax credit - $595 (if both children are below 17)

minus Making Work Pay credit - $432

and your net tax refund will be $2765

 

Your mother in law does need to pay or report anything if your situation.

Let me know if you need any help.

 

Customer: replied 6 years ago.
i didnt understand about mother-in-law what do we need do for her does she pay as employer?
Customer: replied 6 years ago.
I think i need to file form 941 to report and pay wages for me and wife, along with schedule c or c-ez. I just got a ein. Do i need do anything else with mother in law?

Your mother-in-law may hire you as an employee or as a self-employed contractor.

A general rule is that anyone who performs services is an if he/she is not in control what will be done and how it will be done.

Facts that provide evidence of the degree of control and independence fall into three categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker's job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

 

There will be less paperwork if you are self-employed contractors. You may sign an agreement with your mother-in-law for providing services - not for working specific hours. In this case your mother-in-law doesn't need to file the form 941 (which is filed by employers.

 

You may have EIN for your business - in this case you will use it on the schedule C - http://www.irs.gov/pub/irs-pdf/f1040sc.pdf - see header box D, but you are not required to have it.

If you are self-employed - you will use schedule C for your self-employment income and expenses - http://www.irs.gov/pub/irs-pdf/f1040sc.pdf and calculate your net income. You net income from self-employment is a subject for 15.3% self-employment taxes and should be calculated on schedule SE - http://www.irs.gov/pub/irs-pdf/f1040sse.pdf

You will use 1040 form - http://www.irs.gov/pub/irs-pdf/f1040.pdf for your tax return - following would be important entries:

  • line 7 - wages from W2 box 1 - as he also has a regular job.
  • line 12 - net business income from the Schedule C
  • line 27 - one-half of self-employment tax from the Schedule SE
  • line 56 - self-employment tax from the Schedule SE

The key point is to determine qualified business expenses and to keep a good record.

Let me know if you need any help.

 

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