Discussion:Live-in worker with no wages but free rent

Client, who lives in another city, inherited a house and is holding it as investment. The property is not generating any income. He arranges for someone to live in the house and do repairs. The compensation is free rent.

To me, this is a employer and employee relationship and the rent the worker otherwise has to pay is his compensation. My questions: 1) Shall I prepare quarterly payroll reports and issue a W-2 at year end? 2) How do I handle the withholding taxes since there is no cash involved? 3) What other things do I need to know?

Please advice and thank you in advance.

Household employee can be reported on owners' 1040 unless he/she gets an EIN and withholds taxes for the employee.

They also can recompense the "someone" for FMV of services and then the "someone" pays rent to the person for use of the property. This I think is the correct treatment of payment for services...seems like bartering to me.

Employees (even household need to provide W-4, I-9, etc.) so it sounds to me more like they are "trading/bartering" services. The repairs will increase the basis of the home and the income from the barter will be paid in the form of income to the recipient....

IF ANYONE HERE DISAGREES, SHOOT ME NOW!!!!!

Second, if this is an EE, then there are labor law issues to be dealt with. You should read the 29 CFR 531.XX regulations for details on figuring if the minimum wage burdon is met. Remember, for figuring min wage complaince you can only credit the cost, not any profit.

Third, once you have figured out the min wage/OT burdons, you get to figure out compensation for the IRS. Generally, this will be the FMV of the rent plus any cash.

Fourth, if there is not enough cash to withhold, you need to gross up the wages. See Pub 15-A. However, see §119 amd §3121(a)19. You would need to file the required state and Fed quarterly/annual reports and W-2 at. Plus, deal with whatever nexus issues you have by having employees in that location.

Also good points about household workers and non TorB compensation.

I don't think it is an employee issue since this is a "trade" for services and there is no management of the services...they are "bartering"...

If they want or need to make them "employees"....control, etc. then of course the employer has responsibilities.

Original poster indicated that they are living in the house, doing repairs and the payment is "rent free". Seems to not be an employer/employee relationship...but what do I know? hehehehe

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If living on the property was required by the "employer" to do the job and for the "employers" convenience, then you should be able to exclude it. You will still need to worry about unemployment, disablity insurance etc. and I am unclear if you need to issue w-2's showing zero income.

Sounds like you are trying to get something for nothing. Pay the person.