The problem with hiring a senior caregiver as an independent contractor
Why the IRS says an in-home senior care worker is most likely your employee
It can be a long process finding and hiring a senior caregiver for your parent or elderly relative. But almost equally as important as finding the right person is making sure your taxes are handled correctly. Managing taxes for an in-home caregiver can be tricky and there are a lot of sources on the web that can be misleading — especially when it comes to what type of paperwork to file.
Is your caregiver an independent contractor or a household employee? Do they need a W-2 or a 1099? The short answer is that the IRS in Publication 926 says your senior caregiver needs a W-2 to file their taxes (assuming they earn $2,100 or more from you during the year) because they’re most likely a household employee, not an independent contractor. Here is everything you need to know about why that is.
Why are almost all senior caregivers considered employees?
"The difference between an employee and an independent contractor hinges on who is in control of the details in the working relationship," says Tom Breedlove, Sr. Director of Care.com HomePay. "An employee is someone who reports to a job when directed and follows a specific sets of rules determined by the family."
You have an employer-employee relationship with your senior caregiver because you are in control of how they spend the day with your parent or elderly relative. You ask them to take your loved one to run errands, help them get ready for the day, administer their medication and handle 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 as an employee, they come to your home (or your senior's home) and use any necessary supplies provided there.
What is an independent contractor?
"An independent contractor, if classified correctly, has complete control of their work environment," adds Breedlove. "They set their hours, set their place of work, set their rate of pay and typically offer their services to the general public."
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. This is most commonly seen when a loved one needs assistance from a home health aide that is assigned to provide care at the discretion of a doctor. Generally, an independent contractor provides needed equipment and supplies, creates their own schedule, and can hire other contractors to fill in for them. Also, contractors don't work regularly for the employer; instead they are hired on an as-needed basis.
What's wrong with classifying my senior caregiver as an independent contractor?
If you misclassify your senior caregiver, you’re not following a set of rules and procedures outlined by the IRS, which puts you at risk of tax evasion charges. The catch-up process to make things right comes with back taxes, penalties and interest that can be very expensive. And you’ll spend hours filling out the federal and state tax forms you should have sent in for the time period you misclassified your caregiver.
Speaking of your employee, it’s also worse for them to file as a contractor. They will end up paying more taxes at the end of the year because independent contractors pay both the employer and employee portions of Social Security & Medicare taxes. That's an additional 7.65% in taxes that employees are not subject to. Additionally, independent contractors are not able to qualify for unemployment insurance benefits when their job ends, which is an important safety net for workers to have access to.
Who files taxes if I hire my senior caregiver through an agency?
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, which means they handle the payroll and tax process. 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.
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 their best interests at heart. Plus, if you ever need to part ways, you're creating a safety net for them with unemployment insurance. After all, they're an important part of your family and you want to make sure that they are taken care of -- just as they take care of your loved one.
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