Do you Need To 1099 a Manager for their rent concession?

Does anyone know if you are required to 1099 a manager for the rent concessions that they are receiving for their duties? If the rent is $300 per month and you are not charging them for that as part of their compensation do you need to 1099s them for $3600 worth of income?Many thanks for your input - Tim King

Tim,I believe that is a gray area.  If living on the property is a requirement, it can be a “condition of employment” and not taxable compensation.  brandon@sandell is a retired tax attorney and might hop in here.Howard

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Thanks for outing me, Howard.  :)  Seriously though, we require managers to live on property (and sometimes our workmen also) and their housing is a tax-free benefit of employment (I believe the rule is that it can be a tax-free benefit if it is implemented “for the benefit of the employer” which in this industry I think is easy to justify).  Therefore we do not report it to the IRS either as a deduction or expense to us, and not as income to the manager.Any other kind of “discount” however, (which we do offer to other employees) is recorded as a “rent discount” and deducted from our gross income when our P&L is tallied up for the year.  So that “lost income” disappears but we do not report it on a 1099.  I do not know the legality of that, which is sort of your original question in the context of a non-manager (if the employee’s living there is not “for the benefit of the employer”).  I’d be happy to hear other opinions on the proper method when the free housing is not "for the benefit of the employer."Brandon@Sandell

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What I remember from owning SFRs was that all compensation needed to be reported.  I did household moving for a short while after a layoff from aerospace, about 1975, and an apartment mgr couple that I moved told me that they had to claim the discount on their rent as income.  They got a salary and a discount on the rent.  Probably best to get a paid professional opinion on this. Also, the IRS may have a bulletin covering this on their website, I’ll look at it when I get a chance.  In order to be productive you want to avoid audits and stay out of court wherever, and as much as, possible.  If there is such a rule ‘for the benefit of the employer’ I’ve never heard it.
Jim Allen

Citation needed, I guess.  Here is a quote from IRS Publication 15-B, Employer’s guide to fringe benefits:See: Publication 15-B (2023), Employer's Tax Guide to Fringe Benefits | Internal Revenue Service on Your Business Premises

        You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests.
        
           
                 It is furnished on your business premises.
              
                 It is furnished for your convenience.
              
                 The employee must accept it as a condition of employment.
              
        
        Different tests may apply to lodging furnished by educational institutions. See section 119(d) of the Internal Revenue Code
           for details.
        
        The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging.
        On your business premises.
                   For this exclusion, your business premises is 

generally your employee’s place of work. For special rules that apply
to lodging furnished in a camp located in a foreign
country, see section 119(c) of the Internal Revenue Code and its
regulations.

        For your convenience.
                   Whether or not you furnish lodging for your 

convenience as an employer depends on all the facts and circumstances.
You furnish the lodging to your employee for your
convenience if you do this for a substantial business reason other than
to provide the employee with additional pay. This is true
even if a law or an employment contract provides that the lodging
is furnished as pay. However, a written statement that
the lodging is furnished for your convenience is not sufficient.

        Condition of employment.
                   Lodging meets this test if you require your 

employees to accept the lodging because they need to live on your
business
premises to be able to properly perform their duties.
Examples include employees who must be available at all times and
employees
who could not perform their required duties without being
furnished the lodging.

                   It does not matter whether you must furnish the 

lodging as pay under the terms of an employment contract or a law
fixing the terms of employment.

        Example.
           A hospital gives Joan, an employee of the hospital, 

the choice of living at the hospital free of charge or living elsewhere
and receiving a cash allowance in addition to her
regular salary. If Joan chooses to live at the hospital, the hospital
cannot
exclude the value of the lodging from her wages
because she is not required to live at the hospital to properly perform
the
duties of her employment.

        S corporation shareholders.
                   For this exclusion, do not treat a 2% shareholder

of an S corporation as an employee of the corporation. A 2% shareholder
is someone who directly or indirectly owns (at any time
during the year) more than 2% of the corporation’s stock or stock
with more than 2% of the voting power. Treat a 2%
shareholder as you would a partner in a partnership for fringe benefit
purposes,
but do not treat the benefit as a reduction in
distributions to the 2% shareholder.

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Great, thanks Brandon.  This clears up a lot.  And I’m liking this idea of owning an MHP even more, now that I’m getting a clear picture on how these things work.  Thanks again!
Jim Allen

Many thanks for all of the great feedback - Tim

Do check on the unemployment laws and regulations in the state the park is located in and the state that your organizational structure is licensed in.  These will come into play if you make your park manager an employee.  Not contributing to unemployment comes with hefty fees


But just to be clear, if one is 1099-ing a manager, then they are an ‘independent contractor’ and not an ‘employee,’ correct?  So there is no unemployment benefit to be paid.I believe as long as one’s manager can work their own hours and does not have to wear a uniform, then they can be paid as an independent contractor, not as an employee.  I know F&D pay all as employees just to be ‘safe,’ but I’d appreciate some professional input on the legality of paying managers as contractors, not as employees.-jl-

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An IC always gets a 1099. But what, exactly, does an IC look like? What I remember from the Workers Comp people was that they got general instuctions, not specific, they did not punch a clock, and they made their own decisions as to how to get a job done. Of course, workers comp is more interested in their percentage (of payroll) than keeping a business owner out of court. Brandon above did such a great job with compensation that hopefully he’ll weigh in again with a professional opinion. The lawyers have an interesting saying when it comes to trying to figure out what something is. They say if it looks like a dog, smells like a dog, and barks like a dog then it must be a dog. Brandon, please clear up this issue for us. Last year I looked in the IRS website for info for my dept at work and found that it was very easy to use and very clear, so don’t overlook that resource.

Jim Allen

This is my personal opinion, and not a legal opinion, but I think it would be an uphill battle to claim a park manager is not an employee.  There is a lot of material out there on the differences between employees and IC’s, and I have heard that the states and IRS are interested in chasing people who are breaking this particular rule.  And if you are flagged as someone who is breaking this rule, you should expect that the burden of proof will be on you to prove you were using the proper classification.  It will not be up to the government to prove you were wrong.  So, as I said, you will have an uphill climb.I recall seeing a list of items that tend to distinguish IC’s from employees and no one factor is determinative, but a “totality of the facts and circumstances” would be considered (by a judge).  Try an internet search for these factors – I am sure there are a lot of web pages with info on that.One factor is whether the contractor/employee has other employers/contracts.  If the manager lives in the park and does not manage other parks as well, then 100% of their job is spent working for you, and does not look like the person is very "independent."I would say, “If it looks like a duck, walks like a duck, and quacks like a duck then it’s probably a duck.”  (Duck/dog whatever
 )  :slight_smile:

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But, if it quacks like a dog you might have a case!

Our managers all have other day jobs.  They earn more money and spend more time at those day jobs, so I think that would bolster our case that our managers are ‘ICs’ and not ‘EEs.’-jl-

Jefferson, I think I’m going to follow your lead on this. Do you have your managers sign any sort of agreement? If so, any way you might be able to share? Or maybe given taking IC route better off not signing an agreement?

Thanks Brandon. Though its your personal opinion but you get it right. Everyone should send a 1099 form to every contractor–this means individuals or unincorporated businesses such as LLCS–to whom you paid $600 or more for services, rent, awards, or other miscellaneous business-related activities during the year. You only need to issue 1099s for business payments to non employees– like the person who decorated your office or the one who designed your new website. You do not need to file a 1099 for the photographer who took your wedding photos–that’s a personal expense, not a business expense.

Jefferson how do you handle WC for your managers as independent contractor.

What do you do if your manager as an independent contract gets hurt on the job?

Our onsite people get rent credits. If they get income on top of that as an onsite manager they are absolutely treated as an employee. It is all about insurance. E&O, professional liability, workers comp, etc. In an effort to save a small amount in payroll taxes you are potentially putting your company and the community at a significant risk.