Hiring Independent, In-Home Caregivers
Hiring Independent, In-Home Caregivers
Al Capone was convicted of tax evasion. With all the crimes he committed, it was taxes that brought him down. When I spoke to an accountant about paying in-home caregivers to help my father every day, he warned me not to mess with the Internal Revenue Service (IRS). If you don’t pay household employees properly, there’s apparently a whole department at the IRS dedicated to this matter who could come after you. What?! Color me terrified. They are serious about finding people not following payroll laws. Since the thought of jail didn’t sound that appealing to me (although it would be a respite from caregiving, hmm), I proceeded to research what I needed to do in order to hire a caregiver for in-home help. I hope that what I learned from my experience can help you if you’re thinking about going this route.
For starters, privately-hired, in-home caregivers fall into two categories according to the IRS: Household employees and independent contractors. Understanding the qualifications of each of these employees and their tax implications is important. (So you don’t end up like Al Capone.) It is also worth noting that you will officially be known to the IRS as a household employer once you begin paying an employee or contractor.
Household Employee Definition
With a household employee, you have control over their hours, how they do their work, and how much to pay them. You are responsible for paying the employer part of their taxes (including social security, unemployment, and local taxes for your area), deducting their taxes from each check, and filing those taxes quarterly with the government. You must also provide the in-home caregiver with a W2 statement at the end of the year to file with their own tax return which tells them how much you’ve contributed to their taxes on their behalf.. Furthermore, you will need to pay overtime and provide vacation time (or paid time off) if they put in more than forty hours a week.
The IRS has a schedule H for you to file if you have household employees. This requires you, as the employer, to 1) confirm that this person can legally work in the U.S., and 2) create an Employer Identification Number (EIN) which you can easily procure for free through the IRS website. (I got one for my mother.) There are accountants and lawyers that can also get this information for you for a fee. Be sure to check the box that indicates you are a HOUSEHOLD employer (not a farmer, arms dealer, trucker, etc.). Once you have that number, you will be expected to file the Schedule H with your tax return each year as an employer. There are business deductions that might apply that you should discuss with your accountant.
Independent Contractor Definition
An independent contractor controls their own hours, has an office for their business, and can assist multiple clients. You only tell them what you expect to be accomplished not how or when to do it. An independent contractor provides you with a contract to sign and carries their own worker’s compensation and liability insurance. You must provide a 1099-MISC at the end of the year if you’ve paid that person more than $600. The contractor is responsible for paying their own self-employment taxes. This means you do not need to withhold taxes or pay employment taxes. If the professional caregiver works for you full-time and has no other clients, the IRS will come looking because they are considered a household employee by their IRS’s standards.
If you hire an independent contractor, you will want to confirm that they have professional liability insurance. See if they are incorporated and make sure to have a clear scope of the work agreement in writing that includes what you expect and what they are committed to providing.
The bottom line: The main differences between household employees and independent contractors are the level of control you have over when and how they do their work and how much tax responsibility you carry. Before you enter into a contract, you’ll want to be explicit about which type of employment the in-home caregiver occupies. If an employee is misclassified as an independent contractor, they can face serious consequences.
Extra Insurance Options
Whether you choose an independent contractor or household employee, you might want to carry umbrella liability insurance for your home. You may also want to have worker’s compensation insurance to cover any injuries the in-home caregivers might have while trying to move your loved one or any other accidents they may have in the home. The details on these types of policies are something you should research. If you work with an agency, they should be bonded and carry these policies for any people they send into your home.
My Process for Hiring Independent Caregivers
With all this info in hand, I was left with a decision: Which way do I go? Can’t I just give the in-home caregiver an envelope with some cash each week? What I decided was that I wasn’t willing to risk the potential consequences of getting caught. The people you’re paying have to be eligible to work in this country (I don’t want immigration or Homeland Security coming after me either) and they need to file their own tax returns. Plus, if I qualify, I want to deduct the expenses for caregiving and care on my parent’s tax return. Once I made the decision to privately pay for in-home care, it was time to compare my options.
- Option 1: Pay the aides as an employer and manage them myself.
- Option 2: Work with an agency to hire and manage caregivers.
- Option 3: Hire a registry to find independent contractors on my behalf and handle payroll and taxes
- Option 4: Pay the aides as independent contractors and manage them myself.
- Option 5: Move my parents into a care community/residence that has staff and pay a monthly fee.
I created a spreadsheet that compared the total expenses for each category for several companies. I had to think about intangibles like: How much time would I need to commit to managing payroll weekly? Would I have to hire an accountant to do my tax returns and quarterly returns because it would be too complicated to do myself?
The benefits of working with agencies and registries is that if my professional caregiver gets sick or needs time off, a replacement will be secured to cover those hours. How much is that worth to me? For my situation, I had a particular caregiver in mind who had done an excellent job for a friend. Her hourly rate was high, but worth every penny for my peace of mind.
If you’re thinking about privately hiring an in-home caregiver, I would take the following into consideration as you make your decision: Your lifestyle, the time you have available time to manage and pay employees, your peace of mind, your comfort with the person you hire, and any related costs that come along with hiring a professional caregiver for yourself or loved one. If you’re hiring someone else to manage this for you--an accountant, lawyer, personal assistant, or household finance manager/bookkeeper--those costs will need to be added on top of payroll.
- How Much Does it Cost to Hire a Caregiver?
- A Caregiver's Guide to Long-Term Care Insurance
- Family Caregivers and Self-Employment Tax (IRS)
About the Contributor
Fern Pessin is the author of “I’ll Be Right There: A Guidebook for Adults Caring for their Aging Parents.” She also blogs about her caregiving experience and shares caregiving resources on I’ll Be Right There.
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