If you have an office in your home that qualifies for the home-office deduction and you employ a cleaning lady who maintains both your home and your home office, there are a couple of tax considerations to keep in mind.
The amount you pay your cleaning lady for her services can have an impact on your taxes. Let’s assume you pay her $200 every two weeks, totaling $5,200 annually. Say your office is 15 percent of your home. In this case, you pay her $780 to clean your office and $4,420 to clean your home.
Here are two key questions:
• Should you pay your cleaning lady through a W-2 or a 1099 for the office cleaning?
• Do you need to pay the Nanny Tax for the home cleaning?
The answers depend on whether the cleaning lady is considered an independent contractor or an employee.
Given the conditions of her work—she cleans with little or no direction, provides her own supplies, and cleans many other houses—she exhibits the characteristics of an independent contractor.
Accordingly, for the $780 you paid her to clean your office, you should provide her with a 1099-NEC form. On the personal front, you are not liable for the Nanny Tax because the cleaning lady qualifies as an independent contractor.
Please note that if you fail to file Form 1099-NEC, you could face an intentional disregard penalty of $630 or more for each missed form.
We specialize in helping clients clarify their taxes so they keep more of their money. Many small business owners who come to see us in Fort Worth, TX generally do not understand the tax law enough to explain it to a fifth grader.