Due to the 2020 global pandemic my wife and I have been concerned about indoor exposure to others. We are fortunate enough that we can work from home so we are always here, and no one else is allowed in our home.
Because of this, we have tried to make arrangements to be out of the house when our housekeeper comes to clean. This isn’t always possible so over the year, we asked that she skip cleaning our house on the days when we were home.
Understanding that times are tough, we have continued to send her payment for the weeks where we asked her to stay home. My question is this: Because we gave her money but no work was done, should she consider this income or a gift?
While it doesn’t change my taxes any, it would definitely affect hers. Would it help her if I provided a statement of all the payments and which ones were for actual cleaning, along with a letter stating our position that the others were gifts?
Willing to do the Right Thing and the Smart Thing
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When so many domestic workers are losing money during the pandemic, I want to thank you for recognizing the financial needs of your housekeeper by paying her and exploring ways to gift her money. Others are struggling to pay their housekeepers at all during this time. Many domestic workers are undocumented and are not eligible for unemployment. You are fortunate in that you are healthy and can afford to still pay your housekeeper, and considerate in that you choose to do so.
I sought the expertise of Bill Smith, managing Director for the National Tax Office at CBIZ MHM, a business consulting, tax and financial services provider. Assuming she is a W-2 employee: “All of it is most likely going to be considered wages, because the person is still controlling the employee,” he says. “The household worker is being paid to continue being under their control as an employee. Because she has to wait and hold the time until she is released, it is the equivalent of work.”
Is your housekeeper an independent contractor or a W-2 employee?
Internal Revenue Service Publication 926 addresses this: “You have a household employee if you hired someone to do household work and that worker is your 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 doesn’t matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association.”
The agency gives this theoretical example: “You pay Betty Shore to baby-sit your child and do light housework 4 days a week in your home,” it says. “Even if the employer wants to cut the worker’s time back, and gives her a handsome holiday gift, the result is likely the same. The IRS is likely to view the gift as payment for not looking for other work because her time was reduced, which is tantamount to paying her for standby time.” It’s part taxes, part the philosophy of logic. That’s the IRS!
And if she is an independent contractor? If you gift $600 in a tax year, you must file a Form-1099-MISC. “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,” the IRS says. As an independent contractor, your housekeeper could write off clothes worn for the job, gas/mileage and cleaning supplies.
Thank you for continuing to employ your housekeeper and for seeking ways to make her life easier, even though it does not affect your own finances. Your willingness to ease your housekeeper’s financial burden is an act of goodwill in itself. The German Enlightenment philosopher Immanuel Kant wrote: “A good will is good not because of what it effects, or accomplishes, not because of its fitness to attain some intended end, but good just by its willing.”
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