An adult over the age of 18 who works in your private home and to whom you pay more than $2200 (2020) in cash salary per year creates tax obligations for the hiring family. Distinguishing between an independent contractor and an employee is essential to complying with IRS regulations. If the distinction is not made when hiring and signing the contractual agreement, the answer is almost always never. Some people prefer not to have the extra responsibility of being an employer and choose to hire only one independent contractor. The self-employed caregiver is a certified CNA or HHA, carries liability insurance, pays workers` compensation and pays taxes on the self-employed (social security and health insurance). You also have full control over planning and all aspects of home care. The IRS makes an exception that states, «In some cases, caregivers are not employees. In such cases, the caregiver must still report the benefit as income on their Form 1040 and may be required to pay taxes for the self-employed, depending on the facts and circumstances. «Keep in mind that there are a variety of factors to consider for employers, employees, and independent contractors: state and federal wage laws, workplace accidents related to liability and/or home insurance, «right to work» laws, etc. Yes, it is a distinction that must be made when hiring! This is important because the IRS almost always believes that your home caregiver is a domestic worker, which makes you an employer. There has been a lot of controversy, confusion and ambivalence focused on whether home caregivers are employees or independent contractors. This has led the IRS to adopt strict regulations on tax obligations related to domestic workers in recent years. Yes, your private home caregiver hired to care for mom or dad is a domestic worker in the eyes of the IRS.
A caregiver working from home that you pay more than $2,000 a year (2017) means tax obligations for your family. Typically, you are the employer if you hire a private caregiver to meet the daily needs of your loved ones. Unless it is distinguished that the caregiver will be hired as an independent contractor, you, as an employer, are responsible for an increased number of responsibilities, including paying taxes and producing irs documents. Families also have to deal with a caregiver`s FICA tax liability — the 6.2 percent Social Security tax on wages up to $118,500 in 2016 and the Medicare tax, which is levied at a rate of 1.45 percent on all wages without limit. Equivalent amounts of FCIA taxes must be deducted from caregivers` wages if their annual salary in 2016 is $2,000 or more. (As a general rule, cash wages paid to a spouse, child under the age of 21, parent or employee under the age of 18 at any time of the year are not subject to this tax unless the household chores are the employee`s main occupation. If the employee is a student, the performance of household chores is not considered his or her main occupation.) Most older caregivers who are paid directly by the household or by an external payment processor acting on behalf of the household are employees, not independent contractors. The IRS has introduced new processes to find and punish employers who incorrectly classify an employee as an independent contractor if they are truly an employee.
See supervision contract forms of employment contract here. All of these laws, regulations, forms and requirements can seem like an insurmountable obstacle. Naturally, some families are tempted to take the easiest (but illegal) way to pay the caregiver «under the table.» However, this approach is bad for both the family and the caregiver. By ignoring relevant laws, families can face countless legal penalties if they do not pay federal and state taxes on labor and have to pay the taxes themselves (see Communications 2004-13 and 2007-35). 2. Register with your state tax authority as an employer to obtain a state tax identification number. (Most states require employers to receive two state tax identification numbers.) These figures refer to state income tax and state unemployment insurance. For a list of state tax authorities, click here.
Note that not all states have income tax. In 2019, the following states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. In addition, New Hampshire and Tennessee only tax income and interest on investments. The facts about financial control determine whether there is a right to direct or control the commercial part of the work. Since nurses do not have significant investments in their work, this factor favors them being classified as employees. In addition, nurses do not have the opportunity to make a profit, which indicates that they are employees. As a general rule, families should use Form 1040, Schedule H, Household Employment Taxes, to report all of these federal taxes on the family member`s personal income tax return and make any required estimated tax payments using Form 1040-ES, Estimated Personal Tax. However, if the family operates a business as a sole proprietor and files Form 941, the employer`s quarterly federal income tax return, or Form 944, the employer`s annual federal income tax return, for the company`s employees, or Form 943, the employer`s annual federal income tax return for agricultural workers, and Form 940, Employer`s Annual Federal Income Tax Return (FUTA), the family can file taxes for domestic workers are included in these forms. Two factors are taken into account in determining the wage rate for self-employed caregivers: federal law and local market prices. January 31 – Form W-2 is used to report gross wages and source deductions. An employer must complete this form in order for the caregiver at the end of the year to file their tax returns and provide copies B, C and 2.
In addition, Form W-2 Copy A and Form W-3 (Submitting Payroll and Tax Returns) must be submitted to the SSA electronically or on paper. To submit Forms W-2 and W-3 electronically, which is free of charge, click here. Although written contracts are not required by federal law, state law varies with respect to contracts for home helpers and other domestic workers. In 2010, New York became the first state (and remains the only state at the time) to require written contracts for domestic workers. Nevertheless, families from other countries would also benefit from a treaty. If the employer hires a caregiver through an agency, the agency may already have a contract ready for its clients. .