Why Caregivers Shouldn't Get a 1099 Form

tax forms

Families sometimes see household workers like nannies, senior caregivers, etc., as independent contractors, not as employees. You may have even heard from friends that have hired caregivers before that using Form 1099 (for independent contractors) at the end of the year is okay for tax purposes.

Unfortunately, this is a common mistake and each year families across the country illegally classify their caregiver by providing a Form 1099 rather than a W-2 at tax time. The IRS has ruled that - with few exceptions, such as some medical caregivers - household workers are employees of the family for whom they work. Attempting to classify an employee as an independent contractor by giving them a Form 1099 is considered tax evasion and does not absolve a family of their household employer tax and legal obligations.

The confusion stems from the IRS 20-point test to determine worker status. Many of the questions are ambiguous and/or subjective. Worse, a worker may appear to be an independent contractor on some of the questions and an employee on others. Which answers prevail? Employee.

If even one of the 20 answers points toward employee, your caregiver is an employee. To save you the trouble of the test, the IRS has ruled in almost all cases that household workers should be classified as employees. Therefore, the family must handle all household employer tax and labor law obligations. Don’t worry about the cost or the paperwork; tax breaks make it cheaper than you think and our service makes it effortless.

The Department of Labor (DOL) recently weighed in on the topic of worker classification as well. If the worker is economically dependent on the job – meaning a significant portion of their financial stability is tied to the job, they’re an employee. Additionally, if the job extends into perpetuity (it doesn’t end unless either party decides to sever the working relationship), the worker is an employee. These two factors apply to nearly every household worker, and combined with the IRS tests, mean that almost every domestic worker should be treated as an employee.


Note: The IRS views worker misclassification as tax evasion and has expanded the number of auditors to augment their enforcement efforts in this particular area over the past several years. As further warning, the household employment industry was cited as one of the primary targets.

 

 
* 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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