Reading the IRS rules are very confusing. Most of the rules seem to apply to a Business.
WE ARE NOT A BUSINESS! Lets try this scenario…
As we age we need more help.
We have a “Cleaning Lady” who comes weekly plus as requested when we need help. She does more than just cleaning. She is becoming a friend as opposed to just a Cleaning Lady. We pay her hourly in cash.
Over the year, we estimate it will come to about 250 to 300 a month… call it 3000 a year. BTW, that is cheap compared to Assisted Living! We would rather age in place.
We also have a lawn guy… who gets $50 every 2 weeks during season… call it $700 a year.
Are we REQUIRED to issue 1099s in either case?
What if we don’t?
Previously we had a Cleaning Service… so this was not an issue. BTW, we found the Cleaning Service too restrictive… 2 or 3 maids arrive for about 2 hours with a set list of tasks. Deviation from those tasks requires contacting the owner. Those extra tasks tend to be expensive.
It would be easier if you were just gifting them the money. Up to what, $14,000, a year. Of course if they hurt themselves on your property, you will get sued. Then, they were doing business for the money.
I don’t think the IRS is looking for $300/month violations. Besides, if neither party reports it, how would they know. In practical terms, there is a very large number of people that operate this way. If I pay my grand sons more than $600 a year for helping me cut wood, etc. do you think I’m going to report it?
What is legal and what is practical is not always the same.
The general rules are that if am individual pays a business, you do not have to issue a 1099 to the business. If an individual pays another individual directly more than $600 in a years for services performed, a 1099 may be required depending on the control over the work. If you pay household help more than $2,400/year, that will trigger the requirement for the payer to make S/S and Medicare tax payments. If you recall, Prez Clinton lost two potential AGs who had hired household help but did pay S/S and Medicare taxes.
The OP is talking about $3,700 a year. The IRS does not state a monetary threshold for prosecuting fraud. The case I mentioned was for housecleaning. It was in the 1980’s and I’m pretty sure it didn’t involve more than $300/month either.