Cash Income: Does it qualify for rebate?

On Schedule C.

That could be an issue with the state employment agencies, but the IRS won't care about these. They do want FICA, FUTA, and federal taxes.

If she is a household employee, then:

She is required to pay the employee portion of FICA, otherwise known as social security and medicare tax, which is 7.65% net. She also needs to pay federal income tax. However, her income is so low that federal tax will be zero. In addition, she may also have state and city income tax.

In addition, the households where she works need to pay household tax and federal/state unemployment insurance. This is on Schedule H. The household tax is basically the employer's portion of FICA, which is

So one scenario is that the employer reduces her income by 7.65% and $372 to pay their portion of social security and FICA. And she pays the remaining amount. So the net FICA paid is $918, and net FUTA is $372 -- so about one sixth of her income goes into taxes.

Be aware that paying FICA gives you quarters of credits, and once you have 40 credits and are past a threshold age or disabled, you can start collecting benefits.

But since she works for so many people, she may be an independent contractor. In that case she has to pay all of the FICA tax (15.3%) and no FUTA.

Nevermind. As long as they have earned income above a $3000, they should get at least $300. However, if she chooses to not pay the FICA tax for this year, and not file a return, then she can't get this $300. Be aware that you have to pay, though the chance of getting away at this income level is high. But the husband probably had taxes withheld at his job, so he should definitely qualify for the $300.

Doesn't sound like it.

Obviously that's not the only criteria, but it's a big one. Sounds like she decides who to work for and how much to charge.

There is not a choice to not pay FICA allowed under tax law. She/they are required to file assuming at least $400 net self employment income, even if there is no taxable income. Moreover, they have already filed an extension and will not get back any withholding due as a refund unless they file. They should only sign a complete and accurate return.

The fact of withholding was given in the original posting. How does having taxes withheld equate to qualifying for the rebate? Further, the normal amount for MFJ would be $600, not $300. But is the husband a non-resident alien? He "received papers" allowing him to work in this country just recently.

In any case, the rebate is a 2008 tax year credit, so if they don't meet requirements for 2007 but do this year, they will still get it.

Several other key points deserve mention.

First, her day-care clients will need her SSN if they want to claim child/dependent care credit.

Second, the profit from the day-care activity should correctly account for the office-in-home expense (day-care rules).

Third, more than just the stimulus rebate, it also sounds like Earned Income Credit is a strong possibility for these would-be taxpayers.

-Mark Bole