What's Wrong With Hiring My Senior Caregiver as an Independent Contractor?

How to file taxes for an adult or senior caregiver.

senior caregiver as independent contractor

Congratulations, you've made it through the process of hiring a fantastic senior aid for your parent or elderly relative. But now tax time is here. What do you need to do?

Filing taxes can be tricky and there are a lot of sources on the web that can be misleading. One of the biggest hurdles you're facing is what type of paperwork to file. Is it a 1099 or a W-2? Is the senior helper an independent contractor or a household employee?

The straightforward answer is that the senior helper you've hired is a household employee, not an independent contractor. Here is everything you need to know about why that is.

Who Files the Taxes if I Hire My Senior Caregiver Through an Agency?
One thing to be aware of is the difference between finding and hiring a senior caregiver privately or going through a home care agency. If you decide to do your own search and hire an independent caregiver who isn't associated with an agency, then you are 100 percent responsible for filing household employee taxes for her.

If you hired someone through an agency, it's important to ask the agency if they file taxes for their caregivers or if you are responsible for doing so. Many agencies have an employer-employee relationship with their caregivers, therefore they handle the filing. But some agencies only act as a middleman and don't handle this type of paperwork. Discuss the tax policy with your agency during the hiring process, so you don't have to worry come tax season.

Why Is a Senior Aid an Employee?
"The difference between an employee and an independent contractor hinges on control in the workplace," says Stephanie Breedlove, head of Care.com HomePay, managed by Breedlove. "An employee is someone who doesn't have control of their work environment and therefore reports to and works for someone else."

You have an employer-employee relationship with your senior aid, meaning that you are in control of how she spends the day with your parent or elderly relative. She takes your loved one to run errands, helps them get ready for the day, administers their medication and handles any issues that come up -- all based on your strategies or the advice of a physician. Together, you are a team, but ultimately you call the shots and she is an employee. And as an employee, she comes to your home (or your senior's home) and uses any necessary supplies provided there.

What Is an Independent Contractor?
"An independent contractor, if classified correctly, has complete control of their work environment," she says. "They set their hours, set their place of work, set their rate of pay, typically offer their services to general public, and most importantly, independent contractors are fully responsible for payroll and the tax process and the administration of that."

An independent contractor is hired to perform a job or service for an employer, but the employer has no control over the details of how the services are performed. Generally, an independent contractor provides needed equipment and supplies, creates their own schedule, can hire other contractors to fill in for them, etc. Also, contractors don't work regularly for the employer; instead they are hired on an as-needed basis.

Why Isn't My Senior Caregiver an Independent Contractor?
Your caregiver is not an independent contractor because she follows instructions on how to care for your loved one. If your senior caregiver worked as an independent contractor, she would make all the decisions about bathing, medication and different exercises to do with your loved one without consulting you, your loved one or the doctor first. She would also be responsible for providing supplies, instead of using yours. Also, your caregiver works a regular schedule and is expected to take care of your parent or relative during the times you have specified. If she was an independent contractor, it wouldn't matter when she worked, just as long as the job was completed by a certain deadline.

What's Wrong with Hiring My Senior Helper as an Independent Contractor?
"Senior caregivers are classified as employees and don't meet the independent contractor criteria; therefore, the employer must administer the payroll and tax process, withhold the taxes correctly and remit them to the government," comments Breedlove.

It may seem easier to have your senior helper file as a contractor, but because she is a household employee, your incorrect filing will be considered tax evasion by the IRS. "If you misclassify your senior caregiver, you are subject to tax evasion charges, and that comes with back taxes and penalties that everyone wants to avoid," says Breedlove.

It will also be worse financially for her to file as a contractor. She will end up paying more taxes at the end of the year because she will be required to pay self-employment taxes as a contractor. Yes, at least she is filing, but if she hasn't been keeping up with those additional taxes all year long, she could end up owing a lot of extra money come April. And having her file as an independent contractor will disqualify her from certain government benefits, such as unemployment insurance.

So in the end, classifying your caregiver as an employee leaves the IRS happy, keeps your family out of potential legal trouble and reassures your caregiver that you have her best interests at heart. Plus, if you ever need to part ways, you're creating a safety net for her with unemployment insurance. After all, she is an important part of your family and you want to make sure that she is taken care of, just as she takes care of your loved one.

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Comments (13)
Photo of Debra H.
Debra H.
Thank you for these kinds of articles. All information is good to know.

Debra
Posted: March 08, 2014 at 1:50 PM
Photo of Stephanie B.
Stephanie B.
Hi sunny joy!

I'm Stephanie Breedlove with Care.com HomePay and I'll be happy to help you out as best I can, but I'll preface by saying your situation is very hard for me to determine an exact definition for the work you're doing. Only the IRS can make a formal ruling regarding your classification as an employee or an independent contractor. You can submit a SS-8 Form to the IRS with the details of the employment arrangement in order to receive a formal ruling.

The Department of Labor's Fact Sheet #25 goes into more detail on the current federal definition of a companion and the labor laws applied to companions at the federal level. Just be aware that your state of may have additional wage and hour laws that apply to companions. When the federal and state laws are in conflict, the stricter standard applies.

Please note that the federal definition of a companion will change effective Jan. 1, 2015. For more information, you can view the FAQ for the proposed changes and Fact Sheet #79A: Companionship Services Under the Fair Labor Standards Act for guidance on how companions will be treated effective 2015.

If you do determine you should be paid as an employee, I can confirm that you are being paid below the federal minimum wage and should have your hourly rate adjusted. I wish you the best of luck moving forward and hope you resolve your situation in a way that works for both you and your employer.
Posted: March 06, 2014 at 6:32 PM
sunny joy
I'm currently working for an agency as an independent contractor. This is my first time in this field of work. My questiontoday is that I am doing four 24hr shifts and an getting paid $10.00 an hour but only for the first 12. She mentioned to me after the fact that I had already taken the job that this was how it was. When we takes on the phone I was told I would get paid $10.00 an hours for four 24hr shifts. Then it is now said $120 per 24hr.shift. no taxes.are taken out and I am wondering if this is typically how it works as a.independent contractor. I do all that is asked of me. I'm supposed to just be a companion, but I do it all... I cook,clean , laundry, all choirs, getting her dressed, helping her up and move around, dogs.. everything! So, my question would be is if this is how it is supposed to be regarding the work I do and what I am getting paid? So basically I'm getting paid $5 an hour for 24hrs or getting paid a12hr shift and working 24... Help me
Posted: March 04, 2014 at 11:58 AM
JC
Hi Deborah,

Assuming someone hires a caregiver through an agency, the agency does not handle the taxes, and the services are provided in an assisted living facility. Does the fact that the services are performed in an assisted care facility have any effect on the employee vs. independent contractor rules? Thanks!
Posted: February 27, 2014 at 10:30 AM
Stephanie Breedlove
Hi Deborah!

There are circumstances where an employment relationship would still apply in your situation. It really comes down to who is in control. If you dictate the hours the caregiver must be available to care for your mother, what days of the week she must work, etc., the caregiver could still be considered your employee. Obviously if the opposite is the case, it's likely you could be okay with providing a 1099. If you are unsure, the absolute best way to get an answer is to file a Form SS-8 with the IRS. Be as thorough as possible and they will make a ruling as to the classification of the caregiver.
Posted: January 06, 2014 at 11:14 AM
LOST
Hi, I want to form a LLC for a home care agency for me and my husband and maybe recruit some other people later. What formation is best a LLC or S-Corporation??
Posted: January 05, 2014 at 5:58 PM
Deborah Enright
If I drop my 91 year old mother at a caregiver's house. Can I then file a 1099 for independent contractor instead of hiring as a household employee?
Posted: January 05, 2014 at 4:32 PM
Stephanie Breedlove
Hi Bob! I'm very sorry to hear your mother isn't doing well. I hope she gets better soon! In terms of how to handle your niece's employment situation, IRS Publication 926 is very clear that this would indeed constitute an employee/employer relationship. Generally speaking, the only persons you would not have to worry about withholding taxes from in an employment situation would be your spouse, your child (if they are under 21) or your parent. The exemption does not extended to nieces/nephews/cousins, etc. The good news for your niece is that by you withholding taxes from her, she'll be contributing to her Social Security & Medicare account for retirement for the duration of her employment with you. And there will be tax breaks available to you to offset your employer costs.
Posted: December 02, 2013 at 5:03 PM
Bob P.
My niece, a nurse from another state, wants to stay with my severely ill, elderly mother and take care of her. The niece is set to start a new job and may lose that opportunity if she helps her grandmother. Is there a legal way I can help with her expenses and/or lost income for missing out on the new job without going the employer-employee or independent contractor route?
Posted: November 29, 2013 at 5:30 AM
Stephanie Breedlove
Hi Letitia!

My name is Stephanie Breedlove and I am the founder of Care.com HomePay managed by Breedlove & Associates. I'm sorry to hear your payroll was not set up correctly for this temporary job. You are correct that if you earned more than $1,800 working for those six weeks that Social Security & Medicare (FICA) taxes should have been withheld from your pay and also paid by your employer. My suggestion would be to speak with her and ask that she provide you a W-2 at the end of the year. You will need to give her your address so she can send this to you. If she does not wish to do this, your only recourse will be to file a Form 4852 when you do your personal income taxes next year. This is a substitute for the W-2 and will absolve you of your tax filing requirement. You will need to pay taxes on this income and she may be audited when you file it, but it is the only way to properly report your wages to the IRS. Good luck moving forward!
Posted: October 01, 2013 at 12:23 PM
Photo of Letitia A.
Letitia A.
I just finish doing a job for a lady Sept 6.2013 and she did not take out taxes and now Sept 30 she wrote me to say she want to get my addresss to send me a 1099, I did not work 6 weeks for her as a contractor ,she called all the shots ,time and everything that was done she was the one that said do this do that and so forth.
I all so kept record of pay so i can file with IRS ,she knew what she was doing she did not want to pay into my taxes,she tried to out smart me,I was there for about 6 weeks. What do i do?
Posted: September 30, 2013 at 4:44 PM
Patricia S.
Hiring a 1099 contractor also carries the risk that your caregiver might claim you defrauded her or him, according to the IRS employee I consulted. While probably not doesn't happen often, the C/G could claim they believed you were withholding your taxes. If you do go that route, you should have the employee sign a contract with you, acknowledging that they understand you are not paying their taxes. That could be difficult for help that are not native English speakers. It's a difficult concept to get across.


But on the negative side of hiring a W2 employee: When you hire a W2 employee you'll have to be responsible for their unemployment taxes. In some states, full-time home employees are entitled to health care benefits. Employees will also expect sick leave and vacation pay. After the Affordable Health Care Act takes place, you may be legally required to do so.

That said, I still think a W2 employee is a better way to go. It WILL cost you more money. But I honestly think a W 2 employee is more committed to you , than a casual independent contractor. It shows the employee that you take their employment seriously, that they matter to you.
Posted: September 24, 2013 at 4:24 PM
Photo of Ray F.
Ray F.
For the last 3 years from 2010 to 2012, I have my comprehensive background check. This includes police clearance, FBI background check and fingerprinting. I am getting a new one this year 2013. It is okey to used for my background check in Care.Com account? Please I need an answer. Thanks.

Ray R. Flores
Posted: February 05, 2013 at 4:18 PM
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