CHARLOTTE, N.C. — With school back in session, many families are turning to nannies to help pick up their kids from campus or watch them after school. Next week is Nanny Appreciation Week, and one nanny asked WCNC Charlotte how she should be classified when it comes to taxes.
VERIFY got an email from long-time nanny Caryn C. asking for clarity on how she should file income taxes.
"A younger nanny is working for a local agency and is underpaid and overtaxed by the agency by giving her a 1099," Caryn's email reads. "Would you please do a verify segment on whether nannies are or are not 1099 employees?"
THE QUESTION
Are nannies 1099 employees?
OUR SOURCES
WHAT WE FOUND
The phrase 1099 worker stems from the IRS form number 1099, which is a form a company must issue to its independent contractors. Workers who get paid on 1099s could be freelancers or self-employed workers who complete particular jobs or assignments but aren't employees of the company.
Since they are not deemed employees, these workers are not paid wages or a salary. Instead, they are paid according to an agreement or contract between them and the company.
How can businesses distinguish between people who should be paid as employees and those who are 1099 workers?
"There is a 20-factor test that has been around for decades, and there are three buckets that you need to look at," Steber said.
The three big buckets are behavioral, financial risk and relationship, according to Steber.
"For example, as an employee, I must be at work at 8 o'clock if I was painting someone's house," Steber said. "As long as I got it painted, they wouldn't care if I showed up at noon as long as I got it done."
As far as financial risk, he says you would get a salary or an hourly wage as an employee. The relationship would be, do you receive set time off or sick days?
"If it works like an employee with hours, behavioral control, financial risk, and everyone kind of knows 'wink, wink, nod,' you probably are," Steber said.
Steber said there is no way to verify, yes or no, whether a nanny is a 1099 worker because it all depends on how the nanny's job is structured. But employers who misclassify a worker, hoping to avoid taxes, can be in for a rude awakening.
"The penalties for improper classification can be severe and harsh," Steber said.
If you are trying to determine whether you qualify as an employee or a 1099 worker, you can submit an SS-8 form to the IRS. They will let you know which category you fall under.
Contact Meghan Bragg at mbragg@wcnc.com and follow her on Facebook, Twitter and Instagram.
WCNC Charlotte's Verify series is all about trying to make a difference in the Carolinas by making sure the community has the correct information. WCNC Charlotte outlines concisely what we know and what we don't know. Sometimes the answer can be surprising. Watch previous stories where we verify social media claims in the YouTube playlist below and subscribe to get updated when new videos are uploaded.