The Problem With Hiring a Senior Caregiver as an 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 most likely 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 a caregiver who isn't associated with an agency, then you are probably responsible for filing household employee taxes for them.
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 are Almost all Senior Caregivers Employees?
"The difference between an employee and an independent contractor hinges on control in the workplace," says Tom Breedlove, Director of Care.com HomePay. "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 they spend the day with your parent or elderly relative. They 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 they are an employee. 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, 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.
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," adds Breedlove. "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 your caregiver 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 disqualified 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 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.