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So, he pays taxes on under the table $$$ and let her deal with whatever she needs to if the IRS contacts her?


Is there a way to do this so his boss doesn't get in trouble? Obviously, he can't afford to lose his job.

Report it as self-employment income. The only way the IRS would question the employer is if he filed Form 8919 claiming his employer misclassified him as an independent contractor.

That still raises some issues if you are a circular 230 tax preparer. If you are just a friend helping another friend with his taxes, you're probably OK unless you also prepare tax returns for others as well.

And does her right to claim him, based on 5 months residence change since his income was under $6100?

No. These are two independent tests. At 5 months, he fails the residency test and is not her dependent. At 8 months, he passes the residence test. But then he'd still have to pass the other tests to be a dependent.

One of those other tests is the income test. That test is waived for qualifying children. For other potential dependents, the cutoff is the standard deduction amount (which is either $3900 or $3950 for 2013 - I'd have to look it up and I'm too lazy at the moment). We haven't really talked about whether he is a qualifying child or not. If he's not, he's well over the income limit.

The $6100 figure is the standard deduction for single people. He gets that whether or not he is a dependent of his guardian. If he were under that amount, the question about being a dependent would be irrelevant to his tax calculation. He would have no tax either way. With his income over that amount, the question of dependency becomes important to figuring his tax.

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