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Re: Hire household employee to watch/care/etc for grandma. Hello,

Customer Question
Re: Hire household employee to...
Re: Hire household employee to watch/care/etc for grandma.

Hello, I hired my half-sister to watch/care for my grandma a few months a year ago. I paid her cash. She said she reported the income on her tax return as her own busniess/independent contr income and paid social security/etc herself.

Anyway, while I'm doing my tax return I see I can deduct dependent care expenses. I entered the money I gave her $2,800 and it lowered my tax bill appx $500 so I want to take this deduction.

Main Question: If I take this deduction would I of had to pay social security employee tax for the care taker/half sister? Would there be any problem me reporting $2,800 in care expense and she reported the income as self employment income/business income?
Submitted: 6 years ago.Category: Tax
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Answered in 1 hour by:
11/2/2011
Tax Professional: Lev, Tax Advisor replied 6 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,146
Experience: Taxes, Immigration, Labor Relations
Verified

LEV :

Hi and welcome to Just Answer!
Generally - as long as you provide her name, address and SSN while claim a credit - there should not be any issues.

LEV :

The question might be if you properly classified her as an independent contractor. In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

LEV :

The IRS uses three characteristics to determine the relationship between businesses and workers:
1. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
2. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.
3. Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.

LEV :

Let me know if you need any help.

Customer:

other issue is I'll owe appx $2K when I mail in my LATE tax return. I'm sure I'll have additional interest/failure to file and failure to pay penalties. Should I include any requests in my LATE tax return to reduce the bill? I've suffered w/ this economy and can't pay this tax bill so I'll be mailing in return w/ NO payment.

Ask Your Own Tax Question
Tax Professional: Lev, Tax Advisor replied 6 years ago

Yes - you will be charges interest and penalties based on the amount you pay late - after Apr 15.

It is very unlikely that the IRS will abate interest charges, but may abate penalties.

 

If you owe tax and don't file on time, the total late-filing penalty is usually five percent of the tax owed for each month, or part of a month that your return is late, up to five months.

Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is determined quarterly and is the federal short-term rate plus 3 percent. Interest is compounded daily. You'll generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid from the due date, until the tax is paid in full or the 25% maximum penalty is reached.

 

You may file form 843 to request the penalties be abated - www.irs.gov/pub/irs-pdf/f843.pdf. Here are instructions - http://www.irs.gov/pub/irs-pdf/i843.pdf

That is a relatively new form - previously the IRS accepted an abate request as a free form letter that may be attached to a tax return or sent separately.

First of all - try the IRS to abate penalties - there is nothing to lose - but in case of success - a part of the problem will be solved.

Let me know if you need any help.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,146
Experience: Taxes, Immigration, Labor Relations
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