To be an employee or a subcontractor?

my husband has been working for his mothers cleaning business for over two years..it was an under the table type of thing..he has asked her several times to make him a legal employee due to things such as our credit, buying a house, etc. so finally we asked her again..we now of course, she decides she wants him to sign a subcontractors agreement... :(
why do we feel screwed all of a sudden? i'm not an idiot, i get what she is doing here..so basically this means, she pays him and its a deduction for her when tax time comes around...and he has to pay his own taxes? am i right on this, or totally off base? is this something we should involve our lawyer in or an accountant?

i know its her business but we have been asking her about him being her employee since the beginning and all of a sudden it seems like she ways to cut corners.. an unbiased opinion would be nice :) anything is better than nothing..i have to talk to her tomorrow about it and i need some back up..thank you..

If he is being treated like an employee his wages and taxes should be treated like an employee too. Signing a subcontractor agreement is meaningless unless a real subcontractor relationship exists--you can not contract to violate the law. In any case he should be getting some kind of paper document showing his earnings be it a W-2 or 1099.

Everyone, even employees, pays their own taxes. They are deducted from their paycheck.

In a sense, an employee even pays the matching portion of Social Security (if a company didn't have to match it, that money would be available to give to the employee...it is all part of the payroll budget).

He needs to look for a different job, or set aside money every pay period to cover the taxes.

If you are an independent contractor, you will get 1099_Misc instead of W2. For W2 vs 1099-Misc, and how you will treat the 1099-Misc income, read: http://taxipay.blogspot.com/2008/03/w2-o...

http://www.ongoingprofit.com/idevaffilia...

Let's see, your hubby gets paid under the table and he has been filing schedule C and SEs all along. While this is a pain for getting credit, etc, the income was reported on the tax returns and the money is in the bank.

Now, your MIL is saying she'll admit to the arrangement and file a 1099-MIsc so she can deduct the expenses off of her schedule C, but you would keep filing the same way....

Yes, I know it would be "better" if he had regular paychecks, regular withholding, less hassle all around...but depending on the exact circumstances of the job, he may be classifiable as an IC.