W-2 with no withholding

[Kea]

Client takes care of children in their house. Agreed at beginning that mother / employer would withhold taxes from her pay. She earned a total of $6000 with a total of $500 withheld. Actually paid a total of $5500. She worked there a few months - all in 2007. When she got her W-2, employer showed gross wages in box 1 of $5500 and $0 in boxes 2 - 6.

I know there is a form for reporting when an employer issues a 1099 when you are really an employee. But here, the employer is indicating that she is an employee, but did not withhold any taxes. No taxes were sent to IRS / SS because employer decided that was too difficult and decided not to do it.

How do you report this? Employer is still responsible for their portion? But what about employee portion? Employer was supposed to withhold but didn't.

Any help or advice is appreciated.

Thanks

[kcjenkins]

Client takes care of children in their house. Agreed at beginning that mother / employer would withhold taxes from her pay. She earned a total of $6000 with a total of $500 withheld. Actually paid a total of $5500. She worked there a few months - all in 2007. When she got her W-2, employer showed gross wages in box 1 of $5500 and $0 in boxes 2 - 6.

..... Employer was supposed to withhold but didn't.

Those two statements are not consistent. Either she did withhold, as you first say, or she did not. Interesting that this is a mother/daughter issue, which means apparently that the older child was paid to care for her younger siblings. Given that it is family, seems to me the logical way to deal with it would be for her to ask Mom to just pay her the missing $500. But if it were me, I'd be very leery of getting into this family fight. There could be all sorts of reasons why she did not do that.

Could be that the girl is telling the truth, but I don't see any way to know that for sure. Unless she had checks with withholding mentioned on them, I do not think the IRS would be interested in getting into this either. It sounds like a lose-lose thing for you.

[Kea]

My post wasn't clear. When I referred to the "mother / employer", I meant the mother of the children my client was taking care of. She is not the client's mother.

The employer said at first she would withhold. And, in a sense, she did, because my client did not get the full amount. The full amount of income should have been $6000, with $500 withheld. But the withholding never got turned in. Since it never got turned in, the employer did not include it on the W-2. Box 1 shows $5500 and 2-6 are $0.

It's not on a 1099, so I won't show it on schedules C and SE (and this also would not be a good thing for my client). It is a W-2 with no SS / Medicare paid by either party. How does that now get paid, and by whom?

I hope that clarifies the situation.

Thanks

[jasdlm]

Seems to me that 'mother' should file 1040H with payment of $959 which would show Employee's FICA (withheld), Employer FICA, and $41 Fed W/H. Perhaps a corrected W2 would need to be issued, also. I don't do very many household employees. Was there a written agreement about the hourly or monthly wage paid? Did she receive any type of paystub?

Hope this gives you a place to start.

[Kea]

Thanks,

That does give me a place to start. I will check to see if there was a contract and / or paystubs. I kinda doubt there was, but I will ask the client.

I'll ask the client to "remind" the employer to file a Schedule H with her return (I bet that goes over well) and then request a revised W-2.

If there is no revised W-2, and I file as is, does this mean IRS will just go to the employer and request the employer and employee portions of FICA?

My client should not be responsible for the employee portion?

Thanks.

[kcjenkins]

OK, that makes more sense. I'd consider filing an 8919 in this case, but first I'd consider calling the employer and explaining how to handle this correctly, using the Sch H, and gently explain that unless she does correct the W-2, you will have to file an 8919 and that will bring the IRS down on her head.

[Kea]

Thanks so much!

[Kea]

Client if finally coming in today with their stuff. She has a contract that has the amount to be paid as an employee written in the employer's handwriting. However, the employer never signed the contract. (Several delays of "I'll sign it later", then "I won't sign it").

Employer refuses to correct W-2 or file Schedule H. She basically told my client "you can't do anything about it!"

Anyway, I plan to use the Form 8919, but none of the codes seems to fit my client's situation. They did get a W-2, but there has been no determination by IRS. Do I just include reason for 8919 in Preparer Notes section?

Thanks.

[Linda Mathey]

Had a similar situation about 10 years ago. The employer was eventually forced to pay both halves of the social security taxes. Nothing to be done about withholding since that was a "she said....she said" Didn't bother my client since she was no longer working for the party and the employer had no recourse to withhold the social security from future wages because my client no longer worked for her.

[jainen]

>>"you can't do anything about it!"<<

It's actually very easy to file a complaint with the state labor board, especially for documented non-payment of wages. Give the skunk a choice: Pay the $500 in cash immediately, or fight the state for eight months and the IRS for four more, and end up paying full payroll taxes on all past and future household employees. Unfortunately, there's no guarantee your client will ever get any money out it, but revenge is sweet and maybe even a little fun.

[Kea]

Client brought in W-2 -- it's about as "non-standard" as you can get. It's a 2008 form that has the 2008 crossed out and 2007 written under it. The whole thing is hand written. Employer did include an EIN (I wonder if it's valid?)

I've included the W-2 and flagged it as non-standard. I've also included the 8919, but leaving the code section blank (none of them are appropriate). The employee portion of the Social Security and Medicare tax are calculated and added to the total tax for my client to pay. However, the $5500 is now double counted on line 7 of Form 1040. To take out the extra $5500, I've gone into the other entries for line 7 and included $-5500 on the line for household employees without a W-2. That causes an entry of HSH -5500 to appear on line 7. I've explained this on the preparer notes. I'm pretty sure this will generate IRS correspondence regardless.

It's tempting to just enter the $5500 (as a positive) as Household income not on a W-2 (line 7 add-on) and disregard the W-2 and the 8919. That has the benefit of not charging my clients for the SS / Medicare tax. (But I do want IRS to know about the really funky W-2.) And it does have the significant problem that it is not true since the client did eventually receive the W-2. I somehow doubt that the employer sent it to IRS / SSA.

Am I handling this correctly? Is it correct that my client should pay the employee portion of the SS / Medicare tax - or should IRS try to get both portions from the employer?

Thanks

[diligentbiz]

IRS will demand both portions from the employer; that's statute. If the employer didn't send the $500 to IRS, that's trust funds violation. There is something employee can do...cause attention.

[Kea]

I've sent the e-file the way I described. I may not have been right to have my clients pay 1/2 the FICA, but I'm pretty sure what I've filed will get the attention of the IRS. My clients were OK with it because they want to show IRS they are paying their fair share.

I'd love to be a fly on the wall when the employer hears from them.