Employee or contractor on day of "tryout"

Interesting, Doug M, thanks.

CreditMyDebit, it never occurred to me that ethics and morals were even a consideration here. Just law.

The employer is a household employer <...>

If the guy is hired as an employee and lasts one day, the homeowner who needs his services gets into W-4, withholding income tax and payroll tax, getting an employer ID (minor, I agree) and filing the Schedule H, all for one day's work. Maybe other stuff too, I don't know.

You only need to file Schedule H, withhold income and payroll taxes, and file W-2s if compensation of $2,000 or more is paid to a household employee. Based on what I found on CA's EDD, they have a $750 requirement per quarter for registering for SUTA. Based on that, I don't see what the problem is in classifying this person as an employee for the one day trial.

Can't he view that one day as part of the interview process, albeit a compensated part?

One day should be fine, I think(?) But how about two days? Or a week, or a 90 day probationary period?

You only need to file Schedule H, withhold income and payroll taxes, and file W-2s if compensation of $2,000 or more is paid to a household employee.

This is not a per-worker test. OP is going to exceed these numbers by 12/31

Try this for deep background: https://en.wikipedia.org/wiki/At-will_employment
It doesn't answer the question posed, no hardly, but it might be an argument in favor of "hiring" household employee through an agency. Does that moot the question in the OP?

This is not a per-worker test. OP is going to exceed these numbers by 12/31

According to Schedule H and Publication 926, it is a per-worker test.

I'm trying to find an IRC or regulation cite but I'm failing right now. Found it: §3121(a)(7) states that payments for domestic service under a certain threshhold (in this case, $2,000) are not wages for SS/Medicare taxes

So, I engage this person for one day to prepare three tax returns for me. Hour 1 was for me to explain the software and how we handle our files. Hours 2-8 were for him to prepare the three returns. [...]

I treated as IC, there was no degree of permanence, the worker is not a an integral part of the workforce.

There isn't an auditor anywhere who would lose a worker reclassification case against you. You yourself state that you had the right to control the details of the work, such as which software to use, when and where to perform the work and how much time to spend, and how to "handle the files". And unless I'm mistaken, tax preparation is an integral part of your business -- this test has to do with the service performed, not who performs it. The "permanence" factor, as previously pointed out, is completely irrelevant, both in general and as one of the so-called twenty common law factors (which are not used by the IRS anymore).

Note that while "a continuous relationship between a company and a worker indicates a possible employment relationship", the converse is not true -- lack of a continuous relationship indicates nothing.

Now, would an auditor spend the time to bust you? No. Do people sometimes exceed the freeway speed limit for 15 seconds to pass an idiot driver, and not expect to get caught? Yes.

it never occurred to me that ethics and morals were even a consideration here. Just law.

Just as with the other current discussion about gift tax return filing requirements, we all know there are certain violations of tax law that we can get away with because they are too hard to enforce or too small to bother with. But at least for Circular 230 professionals, we are supposed to take ethics into account.

Right about now is when someone is supposed to say "we work for the best interests of the client, not the evil government."

Right about now is when someone is supposed to say "we work for the best interests of the client, not the evil government."

What if we are working for the worker who is being denied his rights and legal protections as an employee? Doesn't he also deserve someone working in his best interests?

As someone else above mentioned, specific questions of employment law should be referred to an attorney specializing in that area, it's not really a tax preparation issue.

Yes, it's news to me, and the "Wow!" was just my reaction to how regulated is our society.

The employer is a household employer, screening applicants for a home caregiver job, not some big company that has a payroll department and written procedures. As to limiting the number of such situations, the homeowner's experience is that many applicants seem qualified and able but turn out after just one day not to be the right fit. Can't he view that one day as part of the interview process, albeit a compensated part?

The workers' comp. is an interesting and good point.

If the guy is hired as an employee and lasts one day, the homeowner who needs his services gets into W-4, withholding income tax and payroll tax, getting an employer ID (minor, I agree) and filing the Schedule H, all for one day's work. Maybe other stuff too, I don't know.

Thats the law.

Follow the duck rule. If it looks like a duck, quacks like a duck and socializes with other ducks, it's a duck. The worker is doing what an employee would do and either continues or is fired after one day.

Hard to fire one who has not been hired.

It's not as easy as just linking to IRC section 3121(a)(7)...
https://www.ssa.gov/OACT/COLA/CovThresh.html
and
https://www.ssa.gov/OACT/COLA/covthresh ... l#domestic
And it's probably in some annual IRS publication somewhere, too, but we have learned not to trust them as they aren't authoritative...

Afterthought: When the IRS pub or whatever says "cash wages" do they really mean something more like "cash, check or money order"?

Afterafterthought: OMG. The operative phrases are "cash remuneration" and "remuneration paid in any medium other than cash" and this is not from some random IRS pub, it's right there in the tax code, in IRC section 3121(a)(7), previously cited. Now, there's "cash" and there's "remuneration paid in any medium other than cash" and I think it's time for a careful analysis of what's cash and what's not cash...

But don't miss IRS's Tax Topic 756 which tells us that "Cash wages include wages you pay by check, money order, etc."

"Hey, Louie, here's that "etc" that I said I would pay you..."

So it seems that for a household worker, classification as an employee triggers the stuff mentioned above, but at least it allows the exclusion of meals furnished for the convenience of the employer. That's important, because, at least in my limited experience, furnishing of meals without charge to household employees is common. But if the position is taken that the day of tryout is a contractor day, not an employee day, we can't use section 119, right?

Which now raises yet another question, way more likely to be a problem than the trial day problem. Section 119 requires (with some exceptions not here relevant) that the meals that are hoped to be excluded be furnished

on the business premises of the employer

. So for all these years have household employees been improperly omitting the value of free meals from their income, and have employers been improperly not reporting those meals on a W-2, and have payroll companies been making that mistake too? After all, a household is not typically thought of as "business premises". Unless, of course, there's an office at home.

Will the trail never end?

Len, before you completely destroy the integrity of the taxation of the entire domestic servant industry: I think I tripped on something somewhere just recently that said that for "household employees" that the tax-free nature of non-cash remuneration isn't via Section 119, but is broader than that. Like, this idea that food is tax-free only if it's offered and consumed "on premises" doesn't apply in the case of meals given to household employees. It's somewhere along the way just as I got sidetracked into consideration of what's cash and what's not cash. If the pool weren't right outside and beckoning loudly, I might stay here long enough to think more about it and retrace my steps. But alas...

And while we're wallowing in minutiae, did you realize that the annual wage threshold [two h's, not three] for farm employee wages is rounded to the nearest $100, whether up or down, while the annual wage threshold for household employee wages is rounded *down* to the next lower multiple of $100. Clearly a case of governmental bias against domestic help. [Is that term itself perhaps a symbol of that same bias?]

Oh, you prob'ly mean section 3401(a)(3), but I think that's a section about withholding, not gross income. I think. There are a bunch of regs. under that section which, if we allowed them to, would lead us astray. They begin with 31.3401-1.

I also found some rulings from which I infer that IRS has not figured out that 119 is inapplicable to household employees.

But if it is in fact applicable, and we just make the household the business premises, does that mean a caregiver who cares for a disabled person and receives free meals in the household can exclude those meals, but not the one where he or she takes the patient out for a meal and the patient pays for both of them, because that's not on the premises. The trail continues.

Weren't you earlier in this thread bemoaning how "regulated" we are, and yet here you guys are, trying to find heretofore undiscovered pitfalls and other hidden traps, with respect to something that doesn't seem to have been a problem for most people for, I'm guessing, more than seventy years. At least, it's not a problem for those who make a sincere effort to report all wages and applicable federal and state taxes for household employees.

and we just make the household the business premises [...] the one where he or she takes the patient out for a meal and the patient pays for both of them, because that's not on the premises. The trail continues.

No, we don't make "the household" the business premises (maybe you meant the dwelling?). After all, a household employee could be a chauffeur who never sets foot inside the residence. Rather, it's the place of work that determines the premises.

Meals on Your Business Premises [...] Generally, for this exclusion, the employee's place of work is your business premises."

It seems Spell Cz. agrees, in a slightly different context:

either on the employer's premises or at the job site

In the case of de minimis meals, there is the ability to fully deduct, and yet also exclude from wages as a non-taxable fringe benefit.

Lastly, you have narrowed your "trail" down to some pretty specific circumstances, given that you describe the employer as "the patient". If the household employee is a caregiver, and the patient is in such shape that they can't manage to get a meal on their own, then there is also an exception for "Meals you furnish during working hours so an employee will be available for emergency calls during the meal period are furnished for your convenience." You know, like sudden heart attacks.

I'm back from the pool and the chloramines from the pool water have stimulated my thinking. I am thinking I might have misconstrued the withholding requirements and the taxability characteristics of meals given to household employees. Pretty much right where Nilodop went...