The wife, after 5 years, got a part-time job.  Her income should be less than $10K.  The company does not want to put her on the payroll but rather just pay her her wages via check.  They will not be giving her a W-2 or 1099.  We file jointly and I make 6 figures +.  How do we handle this tax-wise???  The management at the business is telling her that if she makes less than either $10K or $12K, she will not have to pay income tax.  My guess is that in order for her to pay no tax we would have to file married filing separately.  I'd appreciate any advice offered.



Thanks      

If they are going to pay her $10,000 a year they are required to give her a 1099 if she is working for them. I believe the maximum amount paid to a contractor that doesnt have to be reported with a 1099-misc is $600. $10,000 is way over that amount. If they dont give her a 1099 its basically paying her under the table which opens a new can of worms for both her and the company. If you are being honest on your taxes you would need to report the $10,000 but without a 1099 this makes it an interesting situation for yourself.

It is true if she was single and making just $10,000 a year she most likely would owe very little in taxes, but paired with your income it will be taxed quite heavily, also she will have to pay 15% of the FICA tax instead of the usual 7.5%. I would run your own taxes at the end of this next year as both married filing jointly and married filing seperately. As long as you arent close to jumping to a higher tax bracket with her added income it would be best for you to file married filing jointly.

If you can avoid it, never filed "married filing separately."

It is the worst possible filing status.  It sounds like your wife's employer wants to consider her a contractor and avoid paying FICA, unemployment, workers comp taxes and the like.  Unless she is being paid more than what an employee would get, it's a rip off on your end.

If she gets a 1099-MISC for her work, you'll pay regular income tax on that as well as the nice 15.3% FICA tax.  Plus, if she works there a year and gets laid off, she can't file for unemployment benefits.

If it were me, I wouldn't go 1099 unless I got a nice premium for it - at least 30%.

On the flip side, depending on what your wife does for the company and how the work is performed, the company may have no choice to pay her as an employee.  You can't call someone a contractor and make them come into the office every day, set their hours, pay by the hour and tell them how to do their job.

ETA:  The good Colonel below has an extra zero - the limit for filing a 1099-MISC is $600 in a year.

If they pay her more than $6000 a year they must file a 1099. Sometimes it's actually a contractor position, sometimes they are just angling to avoid taxes and benefits.
For her, it's still income and yes, you will get gouged on the FICA  and other taxes but the flip is that she can beat it down to almost nothing with deductions.
I am self-employed and much prefer to be paid this way. Once you get used to itemizing and paying quarterlies it's actually a much more advantageous position.

Corrected. It is a $600 dollar limit.
And it's income to her regardless of the amount or whether they file a 1099 or not.

Guys, thanks for all the advice!!!

Filing married, jointly, you don't have to file if your gross income together is less than $11,400.