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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Lourdes L.

So I started providing child care for a family from care.com in June of 2015 in my home for 40+ week. I'm confused as how to file and what tax form I should use and weather to give out my social security #. Please advice.
February 09, 2016 at 12:42 PM
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Emily

I work for a family that pays me 160 a week. I have never nannied and had to file taxes before so this whole process is confusing to me. I've been working for them from feb-apr 2015 then sept-present. They are claiming me on their taxes, but told me they are not giving me a w2 form because they dont know how to use those and I know about the 1099 but they have not given me one of those either and I'm not sure if I have to go get one myself for them to fill out or if they have to give me one. I am set up to file my taxes on Feb 28th but don't have any of the proper materials to do so as far as i know.. I really don't want to get in trouble so I would appreciate any and all information that would help me. I have no idea where to start..
February 04, 2016 at 1:06 PM
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Randy

My elderly mother in law suffered a stroke and had brain surgery. She was given a $10,000 state grant for personal support. My 27 year old son was paid with this grant to help take care of his grandmother. Does he have to include this grant as taxable income on his tax return? His was paid every two weeks until the money was completely used. What needs to be done as far as any taxes being filed?
January 28, 2016 at 4:16 PM
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Liv

In 2015 I babysat for a family that owns a hair care company. I was responsible for occasionally picking the girls up from school, taking them to activities such as the movies, and watching them in their home while their parents were working upstairs or consulting with salons. They would pay me with a company check, these payments included my hourly fee and any items the girls wanted/needed while I was watching them. I didn't do anything to contribute to the company and I just received a 1099 from them in the mail. Is this correct? If not, how may I change this as I file for my 2015 tax return? I feel as though I am being scammed because over $200 of my "income" was them paying me back through the company for the items I had to buy for the girls.
January 28, 2016 at 1:16 AM
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Ari Z.

Hello, for a housekeeper who is hired in the state of California for part time basis, will the housekeeper be independent or an employee? Also, how would we get them workman's comp under each classifications (independent/employee). What are the benefits of employee vs. independent. She will make her own hours (we just say no later than 2pm) but she does the housework as we request ex. doing laundry the way we like. Not sure how she would be classified. Thank you.
January 18, 2016 at 4:13 PM
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Mary M.

I provide nanny share services for 2 seperate families in one of the families home.how should I be filling? No taxes have been held?
January 08, 2016 at 6:45 AM
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KMcKay

Hi, I have a full time job, but I babysit for one family on the weekends every weekend. I filled out a 1099 when I began. I get paid $300 a weekend, and have made approximately $7350 in 2015. How much will I be required to pay in taxes for this extra money received?
December 15, 2015 at 4:53 PM
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Tom B.

Hey Charlie. Your employment situation is extremely complicated in terms of how your wages work. Room & board in exchange for work has implications toward minimum wage laws and how the value of that room & board is taxed and it varies by state. Unfortunately I just don't have enough information to help you. I would suggest either calling HomePay or visiting with a personal income tax specialist that can weigh this working agreement with your self-employment income.
April 15, 2015 at 12:19 PM
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Charlie

I'm an in-home caregiver for a disabled person. I'm being paid room and board in exchange for mobility services (cooking, housecleaning, transportation, etc). I'm about to step into a tax issue. The disabled person does not make enough (Social Security Disability) to pay personal income tax and hasn't for years. Does the disabled person still file a W-2 and give me a copy? Does the disabled person still need to maintain a W-4 for me? I didn't make enough to have a tax liability for Tax Year 2014, and I have other self-employment interests for which I do my own taxes.
April 13, 2015 at 1:21 PM
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Tom B.

Hey N. Hello Nicole! If you're in a Nanny Share, you still must receive a W-2. Both families in a Nanny Share are considered household employers and must withhold taxes from your wages, so hopefully the family you worked solo for from January through August continued to do so and simply gave you the wrong form. If that's the case, it's an easy mistake to correct. If not, they'll need to go back and account for these taxes and the taxes they owe as a household employer. Moving forward, both families need to understand they have the exact same tax and payroll responsibilities, no matter whose home the care is being provided at.
April 06, 2015 at 12:38 PM
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N

Hi. For 2014 I worked as a nanny in my employers home from Jan- Aug, then for Aug-Dec they wanted to do a nanny share situation with another family and I started watching both children in the new employers home. Now that it is tax time they are trying to give me a W2 for Jan-Aug and a 1099 for Aug-Dec because they are saying I was no longer their employee because I wasn't in their home everyday. However I was there on some days throughout those months when I didnt need to watch the other child. What do I do?
April 01, 2015 at 2:27 PM
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Pattye W

I work for a Caregiving Agency. I make $11 an hour and the agency gets $5 an hour. My question is I am usually paid by a personal check from the family member that handles the clients financial obligations. I have not received a 1099 or a w-2 from any of my clients. It is time to do our taxes, how is this done? I would appreciate any assistance especially what I can claim being a caretaker (mileage runing errands, uniforms and etc.)
March 14, 2015 at 12:55 AM
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Tom B.

Hello Elizabeth. There are aspects of your job description that seem to point toward employee and some that point toward independent contractor, so I understand why you're unsure. In my experience in this industry, when the IRS has made a ruling of employee vs. independent contractor (they do this when someone sends in a Form SS-8), they typically rule employee unless every aspect of the SS-8 points toward independent contractor. I would suggest handling your working relationship as an employee to be on the safe side, but you can file an SS-8 with the IRS and get a formal ruling if you choose. It doesn't cost anything to file the form, but it may take several weeks before you get a response.
March 12, 2015 at 12:17 PM
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Elizabeth

Good evening. My situation is similar to supesAEPD's. I nanny for family friends. The wife works freelance, so she will request that I hold certain days for her that she then holds for her clients, and I confirm those days, but have flexibility so say no if I request not to. I watch their son at my house with my own son (I used to watch him occasionally at their house, but the family's husband lost his job in Nov2014, so since he is home during the day, it has been entirely at my home since then). I sometimes pickup/drop off, but it is usually them dropping him off on their way. I use most of my own son's toys/etc., but they pack their sons food, medicine, etc. I also have a lot of flexibility with how we use time (I run everything by them, but they are fine with us running errands, and treating their son like part of our family), but they are strict on no tv and prefer when I stick to his nap times. They just dropped off an 1099 and I feel a little confused. I had been planning on W2, but now after reading up on distinctions, am unsure what we should do in this case. I feel a little frustrated, because when the husband lost his job, I lowered my daily rate significantly to help them out.
March 10, 2015 at 3:50 AM
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Tom B.

Hey AP. Live-in caregivers are employees of the families they work for and should not receive a 1099 at tax time. They should receive a W-2 instead. Additionally, you should be paid at least minimum wage for the hours you work. It's possible to deduct meals and lodging from minimum wage to achieve $5/hour, but that depends on what state you live in. It's safer from a compliance standpoint to just pay minimum wage. If the family needs guidance on the rules in their state, please have them visit the main HomePay site for a all the details. (http://www.myhomepay.com/Answers/RequirementsByState)
February 23, 2015 at 5:33 PM

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