Due to the 2020 global pandemic, my wife and I are concerned about the exposure of others indoors. We are lucky to be able to work from home, so we are always here, and no one else is allowed in our house.
So we have tried to make arrangements to be out of the house when our housekeeper comes to clean. This is not always possible, so we asked her throughout the year not to clean our house on the days we were home.
Understanding that times are tough, we continued to pay her for the weeks we asked her to stay home. My question is this: Since we gave her money but no work was done, should she consider this income or a gift?
While it won't change my taxes, it would certainly affect hers. Would it help her if I provided a summary of all payments and which payments 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
You can email The Moneyist with all financial and ethical questions related to the coronavirus at [email protected]
When so many housekeepers lose money during the pandemic, I want to thank you for acknowledging your housekeeper's financial needs by paying her and exploring ways to donate her money. Others today are all struggling to pay their housekeepers. Many domestic workers are undocumented and do not qualify for unemployment. You are lucky to be healthy and can afford to still pay your housekeeper, and you have to choose to do so.
I sought the expertise of Bill Smith, general manager of the National Tax Office at CBIZ MHM, a corporate adviser, tax and financial services company. Assuming she's a W-2 worker, "Everything will likely be considered pay because the person is still in control of the worker," he says. “The housekeeper is paid to remain under their control as an employee. Because she has to wait and hold time until she is released, this equates to work. "
Is your housekeeper an independent contractor or a W-2 employee?
Publication 926 of the Internal Revenue Service addresses this: “You have a housekeeper if you hired someone to do housework and that employee is your employee. The worker is your worker if you can control not only what work is being done, but also how it has happened. If the employee is your employee, it does not matter whether the work is full-time or part-time or whether you hired the employee through an employment agency or on an agency or association list. "
The agency gives this theoretical example: "You pay Betty Shore to look after your child and do light housework at your home four days a week," it says. Even if the employer wants to shorten the employee's time and give her a nice holiday gift, the result is likely to be the same. The IRS probably considers the gift as payment for not looking for other work, as her time was shortened, which is what comes down to paying for its standby time. ”It's part taxes, part philosophy of logic. That's the IRS!
And if she is an independent contractor? If you donate $ 600 in a tax year, you must file a Form-1099-MISC“If only the employee can control how the work is done, the employee is not your employee but self-employed. A self-employed person usually provides his or her own tools and offers services to the general public in an independent company, ”says the IRS. As an independent contractor, your housekeeper can write off clothes worn for work, gas / mileage, and cleaning supplies.
Thank you for continuing to employ your housekeeper and looking for ways to make her life easier, even if it doesn't affect your own finances. Your willingness to ease your housekeeper's financial burden is an act of goodwill in itself. The German philosopher of enlightenment Immanuel Kant wrote, "Good will is not good because of what it produces or achieves, not because of its fitness to achieve a particular goal, but good because of its will."
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