Daycare Tax Tips

Alison hears from a child care helper being treated as an independent contractor

What should she do?

A daycare helper writes:

>I have come across your website and I must say I wish I saw this website about 1.5 yrs ago! I worked for a woman who has been employing her "helpers" as independent contractors. After reading your website I now know that she is in the wrong. My dilemma here is that she is my friend and I don't know how to tell her. My husband wants me to file the proper forms for being misclassified. I want to do what is right but I feel stuck between a rock and a hard place!

You say that you "worked" for this woman. Does that mean you are no longer working for her? If that's the case, I would probably call this a case of "water under bridge" and leave it alone. It's not like anything bad can happen to you by going along with the independent contractor classification. You pay somewhat higher taxes that way, but it could save your friendship.

If you are still working for her, the question is how set you are about keeping the job. If you are flexible on that, then you owe it to yourself to let her know that you should be treated as an employee and back it up with some information from my website. Even if you don't want to lose the job, I still think you should bring it up. She will probably resist doing the employer paperwork for this past year and paying the taxes (and penalties for late filings), but she might be convinced to do the right thing going forward and set things up properly for the new year. Reading on my website, she will become aware of the trouble she can get into treating her helpers as independent contractors.

But, again, remember that being an independent contractor is a worse position for you economically (because of paying income tax and self-employment tax), but you are not the one doing the improper paperwork and looking for trouble in case of an audit--only your employer is.

NOTE: Child care workers (and other employees) who are improperly treated as independent contractors can file IRS Form 8919, Uncollected Social Security and Medicare Tax on Wages with their tax return. In this way, you will alert the IRS to the fact that you really were an employee and you will be allowed to pay just the employee portion of social security and Medicare taxes for the year. (Independent contractors must pay both the employee portion and the employer portion of these taxes, which is the self-employment tax calculated on Schedule SE.) In addition attaching Form 8919 to your tax return, you must also send Form SS-8 to the IRS separately.

It is much better to first approach your employer about rectifying the situation, as suggested above, especially if you are interested in keeping your job. Using Form 8919 and Form SS-8 will cause the IRS to contact your employer regarding compliance with employment tax rules.

Posted on 2010-01-03 22:05:29