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Is it true that if you have a household employee who earns…

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Is it true that...

Is it true that if you have a household employee who earns more than $2,000 per year that you have to not use a 1099, pay their 6.2 and 1.45% taxes or else it is considered tax evasion?

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So is it considered tax evasion if you have a house hold employee and you don't pay in the social security and medicare employer portion on their wages?

Submitted: 3 months ago.Category: Tax
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3/21/2018
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 3 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,435
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. …. My name’s Lane,

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

I’m reading your question now.

Bear with me a moment while I type up my response.

….

Then if you have further questions we can go from there.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 3 months ago

SO sorry, but that's right. for 2018 it's 2100.

...

See this from IRS here: https://www.irs.gov/taxtopics/tc756

...

If you pay cash wages of $2,100 or more for 2018 (this threshold can change from year to year) to any one household employee, you generally must withhold 6.2% of social security and 1.45% of Medicare taxes (for a total of 7.65%) from all cash wages you pay to that employee. You also must pay your share of social security and Medicare taxes, which is also 7.65% of cash wages (cash wages include wages you pay by check, money order, etc.). Unless you prefer to pay your employee's share of social security and Medicare taxes from your own funds, you should withhold 7.65% from each payment of cash wages you make.

...

If you are talking about gardeners that do other peoples' yards, plumbers, electricians, or others that set their own schedule, can have subcontractors of theirs do the work, etc. then this is still a contractor and a 1099 works.

...

And actually, for most cases, a 1099 is only REQUIRED when you are paying someone more than $600 in the tax year as part or your business operation.

...

Also, don't withhold or pay social security and Medicare taxes from wages you pay to:

  1. Your spouse,
  2. Your child who is under age 21,
  3. Your parent, unless an exception is met, or
  4. An employee who is under age 18 at any time during the year, unless performing household work is the employee's principal occupation. If the employee is a student, providing household work isn't considered to be his or her principal occupation.

...

You can either set up a payroll service like care.com OR pay in additional quarterly estimated payments and then reconcile when you do your taxes with "Schedule H (Form 1040), Household Employment Taxes."

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 3 months ago

Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars on your screen, and then clicking “submit")

That’s the only way JustAnswer.com will credit me for the work.

...

I hope you’ll rate me based on accuracy and thoroughness, rather than any good news / bad news content

But again, let me know if you need more here,

Lane

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Customer reply replied 3 months ago
Lane, I understand that this is the correct way to handle. If someone does not do this and instead gives a 1099 form each year is that a form of tax evasion?
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 3 months ago

Tax evasion is a colloquial term, jargon.

...

When it comes to the penalties that IRS can charge, the major dividing line is civil and criminal.

...

90% of a civil penalties come under the very common (1) Failure to file penalty and (2) failure to pay penalty.

...

(Failure to file also covers filing late, and failure to pay also covers paying to little)

...

This comes under the federal code at 26 U.S. Code § 6651 - Failure to file tax return or to pay tax (See this explanation from IRS ... remember IRS doesn't make thje law, congress does ... IRS just administers.

...

"The failure to pay penalty is one-half of one percent for each month, or part of a month, up to a maximum of 25%, of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full. The one-half of one percent rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property. If you file your return by its due date and request an installment agreement, the one-half of one percent rate decreases to one-quarter of one percent for any month in which an installment agreement is in effect. Be aware that the IRS applies payments to the tax first, then any penalty, then to interest. Any penalty amount that appears on your bill is generally the total amount of the penalty up to the date of the notice, not the penalty amount charged each month. See Topic No. 202 for information about payment options.

...

If you owe tax and don't file on time, there's also a penalty for not filing on time. The failure to file penalty is usually five percent of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25%. If your return is over 60 days late, there's also a minimum penalty for late filing; it's the lesser of $210 or 100 percent of the tax owed. See Topic No. 304 for information about extensions to file, if you can't file on time.

...

There can be what's called an accuracy related penalty, which is where IRS is accusing you of gross neglegence.

...

Then there can be criminal interest, penalties and VERY rarely, jail time for criminal tax fraud (sometimes referred to by the public as evasion)

...

You cross the line from civil to criminal when (as with ALL crimes) you are said to have mens rae (a bad state of mind, doing something with purpose, willfully, sometimes is called ""with knowledge.")

...

Not paying the employers 1/2 of FICA would come under the non-filing and nonpayment penalties.

...

Things don't get to the criminal division unless there has been some real scheming, purposeful trickery OR involving and hurting others with an understanding that what you're doing is wrong. (In most jurisdictions this is called intent)

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 3 months ago

Finally, generally, interest accrues on any unpaid tax from the due date of the return until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus 3 percent. Interest compounds daily.

...

Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars on your screen, and then clicking “submit")

That’s the only way JustAnswer.com will credit me for the work.

...

I hope you’ll rate me based on accuracy and thoroughness, rather than any good news / bad news content

But again, let me know if you need more here,

Lane

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