Nanny – 1099 vs W2?

A nanny in Texas writes:

I was babysitting in the children’s home for 16 weeks and got paid $4,100. I have asked the mother for a W-2 and she says she doesn’t have to give me either a W-2 or a 1099 because I was just a babysitter. She set the hours and I worked in her home… how do I file my taxes?

I don’t have time to give you a really long answer, but I do want to help you if I can.

Number one, it sounds to me like the mother should have treated you as an employee and given you a W-2. Instead, she is treating you as a self-employed independent contractor. The two facts you state, that she set your hours and that you worked in her home, are both things that describe an employee. The Internal Revenue Service has a page on its website explaining how to tell an independent contractor from an employee.

You have a couple of options when filing your taxes:

Option 1 – Go along with the mother’s version of things

Under this option, you report your babysitting income as self-employment earnings. You don’t need a 1099 to do this. You just show the $4,100 you earned as “babysitting income” on your tax return (Form 1040 Line 21). Or, if by chance you paid for some work-related expenses out of your own pocket, you can report the income on Schedule C and deduct the expenses. This probably isn’t the case, however.

The problem with this option is that you have to pay more social security and Medicare tax than you should. About twice as much, in fact. If you were properly treated as an employee, the mother would have paid part herself. Since she didn’t, you will pay your contribution (about 7% of $4,100) and her contribution (also about 7% of $4,100), for a total of $579. This is called “self-employment tax” and it is reported on Schedule SE, which carries to Form 1040 Line 57.

Under this option, you will pay both income tax and self-employment tax when filing your tax return. Though if the babysitting income is all you have for the year, you shouldn’t owe any income tax, since the standard deduction is greater than $4,100. You’ll still owe the self-employment tax, however, which is a nasty surprise.

Option 2 – Let the IRS know you were an employee

Under this option, you complete your tax return and report the $4,100 as wages on Form 1040 Line 7. You also attach IRS Form 8919 (Uncollected Social Security and Medicare Tax on Wages) to your tax return. This form will calculate your half of the social security and Medicare taxes. You will pay this amount ($313.65) with the filing of your tax return. (There’s a reason why this amount isn’t actually 50% of the self-employment tax shown above, but I’m not going to try to explain that now.)

Presumably, the IRS will go after the mother for the rest of the social security and Medicare taxes. When using Form 8919 you also have to submit Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding). This form is not attached to your tax return. It is submitted to the IRS separately. Your Form SS-8 will show the name, address and phone number of the mother/employer.

Find a tax professional

No matter what you do, but especially if you choose Option 2, I recommend that you get help from a tax professional. Here are a couple of directories you can use to find a tax pro:

I ended up writing more than I planned to, but I hate to see people like you in these situations.

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