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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