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I was asked to host 2 foreign exchange students. They will give me $2000 per month for expenses and a 1099 Misc at the end of the year.

  1. Will I be considered self employed?
  2. Will I have to pay social security and medicare taxes?
  3. Will I have to keep track of my spending for the children?

I also have a full time job regular taxes being paid. I am concerned, I will pay more in taxes than it is worth and I will get a huge tax bill at the end of the year.

Please help me decide if I should do this?

  • In theory, business expenses are used to reduce your taxable income, so if you spent 1800 / month and they give you 2000 / month, it seems you might have taxable income of only 200 / month. What will be difficult here will be itemizing your expenses [and food expenses likely have special rules about how much is deductible]. – Grade 'Eh' Bacon Jul 6 '17 at 18:17
  • You should ask the agency who is making this offer to you, if they have any tax advice they give to prospective hosts. – Grade 'Eh' Bacon Jul 6 '17 at 18:18
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According to Intuit, you cannot claim the $50 charitable contribution, so the entire $2000 / month will be taxable instead of $1900. That's only an extra $35 if your combined tax rate is 35%.

As TTT mentioned, do this for the experience, not for the money. My wife and I have been hosting international students for 10 years now.

https://ttlc.intuit.com/questions/3152069-i-received-a-1099-misc-employee-compensation-for-hosting-a-foreign-exchange-student-can-i-complete-a-schedule-c-for-the-expenses

  • This answer probably would have been better as a comment to mine, since you basically pointed out an error I made, but +1 anyway for finding it. Thank you. – TTT Jul 13 '17 at 2:46
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  1. Yes. 2. Yes. 3. Maybe.

In general, you are allowed to deduct up to $50/month per student (see page 4), but only if you aren't reimbursed. In your case, since you are receiving a stipend, the full $2000 will be treated as taxable income. But the question of "is it worth it" really depends on how much you will actually spend (and also what you'll get from the experience). Suppose you actually spend $1000/month to host them, and if your combined tax rate is 35%, you'll pay $700 in additional taxes each month, but you'll still profit $300 each month.

If your primary motivation for hosting students is to make a profit, you could consider creating a business out of it. If you do that you will be able to deduct all of your legitimate business expenses which, in the above example, would be $1000/month. Keeping with that example, you would now pay taxes on $1000 instead of $2000, which would be $350, meaning your profit would now be $650/month. (Increasing your profit by $350/month.)

You will only need to keep spending records if you plan to go the business route.

My advice: assume you won't be going the business route, and then figure out what your break even point is based on your tax rate (Fed+state+FICA). The formula is:

Max you can spend per month without losing money = 2000 - (2000 * T)

e.g. if T = 35%, the break even point is $1300.

Side note: My family hosted 5 students in 5 years and it was always a fantastic experience. But it is also a very big commitment. Teenagers eat a lot, and they drive cars, and go on dates, and play sports, and need help with their homework (especially English papers), and they don't seem to like bed times or curfews. IMHO it's totally worth it, even without the stipend...

  • Can you provide a source for the $50 limit? That is intriguing. – BrenBarn Jul 7 '17 at 6:32
  • Thank you for your help, I really appreciate it. Yes, I wanted to profit for doing this but most importantly I wanted the experience. – Anita Jul 7 '17 at 20:07
  • @BrenBarn - I just updated my answer because I believe the $50 deduction is not relevant if you receive a stipend. – TTT Jul 13 '17 at 2:44

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