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Ask Robin D. Your Own Question
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15180
Experience:  15years with H & R Block. Divisional leader, Instructor
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I own a business that send music teachers to homes for lessons.

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I own a business that send music teachers to homes for lessons. Our teachers are all independent contractors. I have a question about paying a teacher who asked to be paid in cash. I'd like to accommodate her, because she is a great teacher, but I wonder if she's confused about the tax implications. We are in New York. Assuming I get her two prospective students, and she begins the first week of May and teaches each week until December, I won't be paying her more than $2300 dollars in 2013. In 2014, If she teaches these two students for the entire year and doesn't get any more students, she won't be making more than $3400. Will she owe a lot come tax season?

Robin D :

Hello and thank you for using Just Answer,
That would depend on her expenses. As an independent contractor she would show her income and expenses on the Schedule C. If she keeps track of her expenses she would be able to use those to reduce the Gross amount. Only the Net would be taxable for income tax and the Net amount over $400 would be subject to Self Employment.
She needs to keep track of those regardless of whether you pay her in cash or check.

Robin D :

Her self employment tax would be around $350 even without any expenses.

Robin D :

Half of that would be an adjustment for her so $2150 would be her income

Robin D :

Now she gets down to what other income she has and the total to decide her rate.

Customer:

Thanks. If someone makes at least $400 for the year in 1099's, are they automatically considered self employed?$2150 would be her taxable income for 2013? Can you give me a basic idea of her rate, say she makes $10,000 for the year as self-employed?

Robin D :

Her rate would be set on her filing status and that would be after her exemptions and deductions.
If we use $10,000 as taxable income and she is single her tax rate would be 15%

Customer:

Thanks, XXXXX XXXXX married. How does that affect the rate?

Robin D :

A person has to pay self employmen tax if they have Net self employment income of $400 or more

Robin D :

It would be 10% but the married joint means they add their income together

Robin D :

So unless the couple together had $10,000 taxable income therate is not going to be correct

Customer:

ok, thanks. She asked to be paid in cash. how would you recommend accommodating her?

Robin D :

If you wish to do that you certainly may. Just make sure that you retain a signed voucher for the amount

Robin D :

That way you know what to deduct in your business and to fill in fo rthe 1099MISC

Robin D :

Just in case there is a question from her later on the amount on the 1099MISC

Customer:

Ok. So what does it mean to pay her cash, then? Do I still give her a 1099?

Robin D :

Yes

Customer:

And is the signed voucher just an agreement? What does it say?

Robin D :

The voucher could be as simple as (Company Name) compensates (Her Name) $XX for this date

Robin D :

have her sign you sign and she gets copy and you get copy

Robin D :

The voucher is for you later to be able to validate your expense

Robin D :

because you will not have a cashed check to do this

Customer:

This is what I was planning to give her. If I have her sign a voucher, then give her a 1099 in January, isn't she required to include it in her tax return?

Robin D :

Yes

Robin D :

Even if you did not give her a 1099MISC she is required to report

Robin D :

but that is not your problem

Customer:

Ok. I think that is what she is trying to avoid. So is there anyway I can legally help her out?

Customer:

I guess not, lol.

Robin D :

You mean to legally help her evade tax

Robin D :

No

Robin D :

You only need to do what keeps you compliante

Robin D :

pay her, get proof, and report the paymenst as required by you on the 1099MISC

Robin D :

what she does then is her responsibility

Customer:

Do you think I should have every teacher sign a voucher in addition to issuing them a 1099?

Robin D :

Do you not pay them by check?

Customer:

I do

Robin D :

Your check and whatever agreement you have with them should be sufficient

Customer:

Ok. Thanks again.

Robin D :

I said voucher for her

Robin D :

becuase you will not have a check

Robin D :

Your positive rating is always thanks enough.

Customer:

Got it.

Robin D :

Best wishes

Customer:

Of course! Are you based in NY

Robin D :

No, a little more south

Robin D :

GA

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