You are a CPA being paid to prepare a tax return for a client. Your client...

You are a CPA being paid to prepare a tax return for a client. Your client has a maid that cleans their house twice a week, and is paid about $3,000 per year. You notice your client has not been reporting, withholding, or paying any taxes on the wages of this household employee. When you bring this issue up to your client, they are quick to reply that the maid is a part-time employee and not subject to the “nanny tax”. Is your client right? What would you do in this case?

Expert Solution

Answer:

As per US federal tax provision, if Client hired someone to do household work and that worker is employee. The worker is your employee if you can control not only what work is done, but how it is done. If the worker is your employee. It does not matter whether the work is full time or part time. Household work is work done in or around your home. As per understanding of the provision it is clear that maid cleans the room of client is household work.

If client is controlling the work of maid and provide direction the work how to be done, maid are considered as employee of client.

Therefore, client opinion is not right because whether it is full time or part time, if above conditions are fulfilled she will be employee of client.

As per tax law provision, if you pay cash wages of $2100 or more in 2018 to any one household employee then client need to withhold and pay social security and Medicare taxes. The taxes are 15.3% of cash wages. Client employee's share is 7.65% and your share 7.65%, client can choose to pay it yourself and not withhold it.

ekkarill92 answered 1 year ago

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