Feb 01, 2017
By Paula Rogers, CPA President and Partner at Terry Lockridge & Dunn
Your last child is finally out of the home and on their own, and you are thinking you can now relax and focus on your retirement – wrong! Many American adults have at least one parent who is 65 or older and face the need to hire in-home caregivers to help care for family members. As Baby Boomers continue to age, they will require more assistance and this need for in-home caregivers will grow.
Hiring a caregiver can be cumbersome and complicated. As you are dealing with the emotional and financial aspects of this process, it is important to not overlook the tax and reporting obligations that accompany the hiring of a caregiver.
The first question that must be answered is whether the caregiver is an “employee.” How this is answered will determine the reporting requirements for the caregiver. This is not a simple question and the Department of Labor (DOL) and the Internal Revenue Service (IRS) have guidelines that help you determine the answer to this question. Usually, if the person for whom services are performed has the right to control the actions of the person performing the services, they will be considered an “employee.” If the answers to control and relationship questions indicate the caregiver is not an employee, and instead an independent contractor who is responsible for their own taxes, then the reporting requirements are straight forward and payments are reported on a 1099-Miscellaneous Income Statement.
When the in-home caregiver is determined to be an employee, there can be numerous payroll taxes that may need to be withheld from the employee and remitted, such as Social Security and Medicare. You will also need to verify that the caregiver can be employed in the United States. This is done by completing a Form I-9 that requires the examination of documents which establish the worker’s identity and whether eligible to be employed in the United States. Usually families use Form 1040, Schedule H (Household Employment Taxes) to report federal taxes due for the employee. Also, W-2’s will need to be provided to the caregiver by January 31st reporting the wages paid to them for the prior year. There are labor laws regarding minimum wage and overtime that need to be reviewed, as well as obtaining workers’ compensation insurance in the event that they are injured on the job.
Hiring an in-home caregiver has many requirements, forms and laws to consider, especially if they are determined to be an “employee” (which is usually the case). It is important to not take the easier (and illegal) route of paying the caregiver “under the table.”
If you are in the process of hiring an in-home caregiver for your aging parent, please reach out to Paula Rogers or one of our other qualified tax professionals to help you get set up correctly. Paula can be reached at firstname.lastname@example.org. Keep in mind that many of these same filings, guidelines are also applicable if you are hiring a nanny for younger children!