Ignorance is not an excuse, and this is where people get into trouble. “It’s just a housekeeper” will not convince the auditor. If you are handing someone hundreds of dollars, then its your responsibility to understand the relevant tax law. The person you are paying, of course, is also responsible to know the tax law from their perspective, but you have no control over that.

The fact of the matter is though, who the heck is going to issue their housekeeper a 1099 MISC? Very few people would even think to do that. A business client probably would but not some individual, who probably just writes her a check or pays cash and thinks nothing of it.

Most small businesses are just on their own to honestly report their income and keep records proving their income is what they say it is.

I’m sure lots of people cheat but then again lots of people don’t.

Again, it’s substance vs. form. If the housekeeper does multiple clients, drives herself around, brings her own cleaning supplies she’s self employed. If she worked for one person consistently all the time, she’s an employee.

How the work is done and how much of the IC’s income comes from you.

When the work is done. It has to be reasonable of course, and there can be some stipulations (by Wednesday, no later than the 15th of next month, etc) but not so specific as to define an exact time. In the case of a housekeeper, it the door is locked between 8am and noon, she will undoubtedly understand she will show up after lunch.

Where the work is done. In most IC cases, there is an understood degree of reasonableness here as well. The lawn service HAS to perform their work on YOUR lawn, right? In the case of the housekeeper, you CAN tell them to NOT clean the garage, the master bedroom or whatever room you wish. You can’t tell a web designer to show up at your office to do all the work or tell your IC sales staff that they have to come into the office to do a physical inventory.

The best bet is to set up a contract, outlining what work is to be done, the amount to be paid, and who will be responsible for the taxes.

Oh yeah, you might want to make sure they have their own insurance (worker’s comp and liability) and that they are bonded.

PS – generally politicians get in trouble with housekeeper’s taxes because the housekeeper works ONLY for them.

Thought exercise: everyone that hires this housekeeper is supposed to issue her a W2? So if she has 20 clients, she gets 20 W2s? Are you serious?

You really expect 20 people who probably don’t know how to issue a W2?

I can’t imagine the housekeeper does anything other than put her income on a Schedule C and deduct the costs of her supplies, depreciation, vehicle expenses, etc. and wind up paying the SE taxes on it. The housekeeper might use an S corporation perhaps but the same basic thing would apply as she’d have to pay herself as officer of the corporation.

Now if this were a situation where she were somebody’s household servant, yes she’d be an employee and declare the income as wages.

http://www.irs.gov/publications/p926/index.html

Specifically this seems to apply to JD:
Workers who are not your employees. If only the worker can control how the work is done, the worker is not your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.

In my professional experience, JD is probably ok, unless his housekeeper comes along later and claims she was an employee and taxes should have been withheld.

As others have pointed out, virtually all indepedent contractors are subject to some type of behavior control. So the mere fact that you tell your maid that you only want the upstairs cleaned isn’t going to make him/her your employee.

If you want to be bullet proof file a Form SS-8 and see what the IRS says.

Basically this is what I’ve learned from real experience. The IRS has what’s in writing and what’s in practice. This is way everyone is confused about tax laws. We can see that from the guy that just flew the plan into the IRS bld. in Austin Texas.

It really comes down to this…the IRS considers an independent contractor someone that doesn’t solely work for you. That’s why travel agencies are the most audited firms. The travel agent usually works in an office provided by their contractor and they can’t book for another travel firm they must book through the firm they are working at.

So are they really independent? Yes and No! So this is what usually happens. When the firm turns in their 1099 statements claiming the money paid to their independent contractors to the IRS the IRS will then check to see if the independent contractors paid the tax on that money. If they didn’t they will contact the contractor if they don’t pay the IRS usually goes after the contractor.

NOTE: this is only when an audit is performed. Millions of companies get away with this every year!

In summary…if you only allow your housekeeper, salesreps, handyman crew to only work for you they are technically not an independent contractor.

The argument that an “independent” housekeeper qualifies as a business owner who employs him/herself is an interesting one, but I suspect that it would only hold water if they had actually incorporated and were doing a formal payroll (and issuing themselves a W-2).

I bet many independent housekeepers don’t do this because they’d prefer to keep their income “off the books.”

I can imagine a situation where a person has four or five legitimate part-time jobs for separate employers. (Say four gigs each at 20 hours.) In this case the person truly is an employee of each of them.

“Household employees include… [anybody] who work[s] in or around your private residence as your employees.”

IC’s are:

“… other business people who work for you as independent contractors are not your employees.”

Now, I can’t think of *any* example wrt Independent Contractors where the paying party provides *no* direction whatsoever to the IC. Simply telling somebody to clean my apartment or mow my grass doesn’t constitute instruction IMHO.

Also as far as controlling the work they do and how they do it. I’m sure they tell her what to clean but I would assume its largely up to the housekeeper if she wants to clean the kitchen first then the bathroom then the rest of the house, or some other order. To me control over how they do the work would be like saying ok you are going to use 409 on the bathroom with paper towels then soft scrub and a sponge in the tub, when you get to the kitchen use mr clean and make sure the final wipe is in vertical lines. Obviously this seems a bit extreme for a housekeeper, but is more vague than instructions you would find in a production factory. Basically I think the housekeeper wouldn’t be an employee because they have more autonomy over how the job gets done.

Since I can deduct these expenses from the income reported on my 1099, the amount that I actually pay taxes on will be something less than the total amount I as an employee would be taxed on.

Either
a. Employer withdrawals taxes and makes payment
b. Service provider’s income recorded on 1099 and makes payment

Thanks for bringing this up. I’d like to know the definitive answer on this as well.