Why caregivers need a W-2 to file taxes - not a 1099

tax forms

When you're looking for a caregiving job, you may hear families or other caregivers say that you should handle your taxes with a 1099 form because you're an independent contractor. The fact of the matter is, that information is wrong in most cases.

 

The IRS (in Publication 926) considers in-home caregivers to be household employees, not independent contractors. Why is this important and how does it impact you? Read on to learn more.

 

Why is the distinction between an employee and independent contractor important?

The big difference between employees and independent contractors are the tax forms that are filed. As a household employee, you file your personal income tax return using a W-2. It shows the wages you earned and the taxes your employer withheld from you throughout the year. Your employer should give you the form by the end of the January following the year in which you worked for them.

 

Independent contractors file Form 1099 to summarize the payments they've received throughout the year and the taxes they've paid to the IRS.

 

How can you tell if you're an employee or independent contractor?

Beyond tax forms, the IRS says the difference between an employee and an independent contractor lies in control of the working relationship. "Caregivers have to come to a family's home on the days they're told to come, work the hours they're told to work and follow the procedures that the family feels are best to care for their loved ones," says Tom Breedlove, Sr. Director of Care.com HomePay. "Because the family is in control of these details, they're a household employer and their caregiver is their employee."

 

Someone who is an independent contractor lets a family know when they are free to work and comes when it is convenient for them to do so. They would complete a job on their terms and usually have several other families they are working with simultaneously. They also have the ability to find other workers to fill in for them if they are unable to work, which employees are almost never allowed to do.

 

What are the consequences of being misclassifed as an independent contractor?

When you file a Form 1099, you have to pay twice as much in Social Security and Medicare taxes as an employee does. Household employees have 7.65% of their gross (before taxes) wages withheld and their employer pays a matching 7.65% to the IRS. Independent contractors have to pay the full 15.3% because theyre self-employed.

 

Read more about how taxes work for nannies and caregivers.

 

Additionally, if you're misclassified as an independent contractor, you won't be eligible for unemployment benefits if you lose your job due to no fault of your own. This is because the family is not paying unemployment insurance taxes to the state like they would if you are their household employee. When you file for benefits, the state has no record of the family being an employer and will deny your claim until the family catches up on the taxes they should have been paying. If this scenario occurs, both you and the family could be audited and required to pay additional back taxes and fines.

 

What if a family just tells me that I'm an independent contractor?

It's important to remember that the difference between being a household employee and an independent contractor isn't a matter of choice, it's about how the job is set up. "Even if a family writes into an employment contract that you're to handle taxes with a 1099, it's still not legally correct unless you meet the guidelines of being an independent contractor," says Breedlove.

 

If you're interviewing with a family that believes you're not their household employee, share this article with them or have them contact us. Many times, families are just intimidated by the work that goes into managing payroll and taxes for a nanny or senior caregiver. Our service will take care of that for them and ensure you'll get the W-2 you need every year to accurately file your taxes.


Next Steps

 

 
* The information contained in this article should not be used for any actual caregiver relationship without the advice and guidance of a professional advisor who is familiar with all the relevant facts. The information contained herein is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for your specific circumstances and may require consideration of other matters.

65 Comments

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Caredaughter

In 2015 I acted as a caregiver for my father and was compensated. I did not consider myself "self employed" and met the poverty guidelines for 2015 and obviously do not have the resources to pay "self employment taxes". I have done several practice tax filings and my calculations are always the same with me OWING the IRS a substantial amount of money. I don't understand how an indigent could possibly owe the government money. How can I legally adjust the outcome so I don't owe any taxes? Thank you!
March 11, 2016 at 2:54 PM
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Tom

My daughter worked as a babysitter at their family home, working 8-4. Now they have given her a 1099 from their company business. She has a large tax bill now. What can she do?
February 23, 2016 at 8:26 AM
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marie

if i get paid $50/day for care in my house for my MIL who has dementia-which is better to take income minus expenses(share of heating/electric/food) or exclusion from taxes w/family paying family w/special IRS ruling. she may need mediciad w/i 2 yrs IF she would get worse in a short amount of time. I've heard that Medicaid could see this as a gift if its not reported as just income even w/spec IRS ruling. thanks ahead of time.
February 15, 2016 at 6:49 PM
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Krys

My cousin watches my daughter and my employer g pays her as a benefit to me. She gave my cousin a 1099. My cousin made like 6,000 for the year and lost all her earned child credits for her two kids cause she was watching my daughter. How is that possible? She doesn't watch anyone else's kids or have a business doing this.
February 11, 2016 at 3:36 PM
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Marti P

Hi,my step dad works out of town and is rarely home so he pays me to go and take care of my mother. I take care of her in her home and take her to all her appointments. Should i get a 1099 or w2. He pays me a set amount weekly.
February 10, 2016 at 11:32 PM

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