Can we legally pay my fiancee's mother as a sub-contractor with cash only?

Question

My fiancée and I used to deliver paper routes. A year or so ago we decided to drop the route and transfer it to his Mother who has since been doing the job. The checks are still in my fiancée’s name, but they’ve been cashed and deposited into his mother’s accounts. We have bank account records and pay stubs to match together as proof of these transactions.

Here’s the situation: last night his Mother came home to find a notice on their door from the landlord that they’re being removed from their apartment by August 30th so that his son can move in instead. It is in the lease that they can be removed with 30 days’ notice. The biggest problem is, in looking for a new apartment, she will not have pay stubs to prove her employment.

Is there a way to prove that we’ve been paying her as, essentially, a sub-contractor without a direct check? Will we be coming into trouble with taxes?? (We’ve been paying the taxes as if we’ve been working the routes as usual and not paying a ‘sub-contractor’.

Any advice would be greatly appreciated.

Thanks!

**Edit: We're in Pittsburgh, PA. We have been completing the taxes from the route as we did prior with our own taxes. We never owe anything on it so we've never had to ask her to pay them. As far as the lease on a new apartment, co-signing is not an option. We are not going to get roped into another scenario with them like this, regardless of if they promise to pay the bills.

Answer 1

Generally, with a paper route, you are considered self-employed. The newspaper gives you checks with no taxes withheld, and at tax time you are given a 1099-MISC form. On your tax return, you deduct all of your expenses (vehicle expenses, supplies, etc.) on a Schedule C, and you have to pay self-employment tax on a Schedule SE. You are a contractor of the newspaper.

Yes, your mother can be your subcontractor. Just as you get a 1099-MISC form from the newspaper, you would need to give her a 1099-MISC form containing everything you have paid her. Then on your Schedule C, this expense would offset your 1099-MISC income (because they would be the same amount). Your mother would then need to claim all of her expenses and pay the self-employment tax on her tax return.

If you had done all of this, your mother could show the landlord her 1099-MISC forms from you or her tax returns to prove her income.

Ultimately, it is up to the landlord whether or not he wants to rent to your mother. She can explain to him the situation and show her bank records that show regular deposits, but if he doesn't accept that for some reason, there isn't really anything else to show him.

From here on out, you can start issuing her checks (and in January, a 1099-MISC). Or better yet, get the newspaper to transfer the route directly to her, which would simplify things for both you and her.