According to the U. S. Labor board and the employment commission, the only way anyone can work a person and not pay social security taxes, medicare taxes, income taxes, unemployment taxes and compensation is if they are a business with their own compensation, etc. and you are required to give them a 1099 at the end of the year if they make over $600.00.

Even if you work someone for rent, you still must pay all of the taxes due on the total amount which they have worked out and give them a W-4 at the end of the year. You also should make sure that you have all of the required information in a file (W-4, etc.) for that person.

If this person calls the labor board and reports that you have worked them and not paid them, the labor board will send in a rep to review your paperwork and payroll files. If they can prove that you have worked this person and not paid them, you will be given a specific amount of time to pay them a specific amount (minus taxes) which has been determined by the labor board.

In a case such as 'work for your rent', the best senario would be to actually process this person a paycheck, pay the required taxes, and then they can sign the check back over to you for the rent.