Your Cleaning Lady & Tax Consequences

June 3rd, 2023 at 11:34 AM

I wanted to offer some insights regarding an important tax aspect related to the cleaning services at your home office.

As you have a home office that qualifies for a home-office deduction and you employ a cleaning lady—let’s call her Annie—who maintains both your home and your home office, there are a couple of tax considerations to keep in mind.

First, the amount you pay Annie for her cleaning services can affect your taxes. You pay Annie $200 every two weeks, totaling $5,200 annually. Given that your office is 15 percent of your home, you pay Annie $780 to clean your office and $4,420 to clean your home.

Here are two key questions:

• Should you pay Annie through a W-2 or 1099 for the office cleaning?
• Do you need to pay the Nanny Tax for the home cleaning?

The answers depend on whether Annie is considered an independent contractor or an employee.

Given the conditions of Annie’s work—she cleans with little or no direction, provides her 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 Annie 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.

Mark S. Fineberg, CPA