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Dad's Home Health Aide is an Independent Contractor? - a Case Study

Posted by HomeWork Solutions on Aug 20, 2015 4:02:00 PM

“Everyone I dealt with at HomeWork Solutions was courteous and helpful, and I was given an immediate answer to every question. It is obvious to me that when it comes to household payroll taxes, working with a specialist is the only way to go.”

Our client, Linda M. came to us when her relationship with her husband’s caregiver was in crisis over taxes. Linda’s husband has dementia and needed supervision during the day. Linda lives in New Jersey and she hired the caregiver in the fall and was paying her in cash every week. An accountant handles the couple’s income taxes, and when she hired the home care aide her accountant told her that everyone treats these workers as independent contractors.

BACKGROUND

Linda is the first to admit that she doesn’t understand taxes, and prefers not to deal with them. In her circle of friends, all the families pay cash to their housekeepers. After checking with her accountant, she felt very comfortable with her arrangement.

In January, Linda’s accountant helped her prepare a 1099 form to give the caregiver, and that is where the trouble began. The caregiver went to a free tax clinic run by the IRS’ Volunteer Income Tax Assistance program. After chatting with the volunteer about her job, the tax preparer advised the woman that her employer had likely misclassified her as an independent contractor, and that IRS guidance states that home care workers are employees and should receive a W-2 form. Moreover, the volunteer preparer showed the caregiver that the misclassification would cause her to owe an additional $2300 on her income tax return.

CHALLENGE

The volunteer tax preparer was absolutely correct. Senior caregivers paid directly by the family are employees and should receive a Form W-2 at the end of the year.

Linda was confused about the distinction between an employee and an independent contractor. She did some internet research and then contacted her accountant. Her accountant explained again that everyone calls their housekeepers and senior caregivers an independent contractor, even though they really are employees.” No one wants to deal with the nanny taxes” he explained, “but if you do I suggest you talk to HomeWork Solutions.”  Linda called HomeWork Solutions and received a quick education on why this was important and what her employer responsibilities were. HWS explained that the distinction between employees and contractors is important because employers of household employees such as housekeepers and senior caregivers file and pay employment taxes. Contractors handle their own tax filings. Linda’s accountant had steered her wrong, and there was some catch up Linda needed to do to straighten things out.

SOLUTION

It was fortunate that the caregiver had only worked for them for a short time.  HWS helped Linda to understand what taxes Linda needed to pay. Linda engaged HWS to help her get caught up on the taxes, and signed up for HWS’ payroll services so this could be done effortlessly going forward. Linda agreed to pay her employee’s portion of the Social Security and Medicare taxes – an option available to household employers. Linda convinced the caregiver to allow HWS to do paycheck deductions for her income taxes to help her avoid the stress of a large tax bill in the spring.

OUTCOME

Since she began working with HomeWork Solutions, Linda has not had a single problem and she credits this with providing her a sense of relief when tax time comes around. Linda’s caregiver is delighted with her direct-deposit payroll, a convenience she has never had before providing private care.

GUIDE TO PRIVATELY EMPLOYING SENIOR HOME CARE

July 2015 Senior Caregiver Independent Contractor Update

On July 15, DOL Administrator David Weil issued an Administrator’s Interpretation that said “most workers [who are classified as independent contractors] are employees under the FLSA’s broad definitions.” This clarification by the government put the final nails in the coffin of the independent contractor myth.

According to attorney Cynthia Effinger of McBrayer, McGinnis, Leslie & Kirkland, PLLC, "The defining question in this calculus is whether the worker is truly in a separate business that is independent economically from the employer. If the worker is economically dependent on the employer, the worker is an employee in the DOL’s eyes."

Read her full opinion...

Independent Contractor Decision Resources

US Department of Labor: Employee or Independent Contractor?

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Topics: worker misclassification, home health workers, senior caregiver independent contractor, nanny tax case study

Senior Home Care and Nanny Misclassification Enforcement Steps Up

Posted by HomeWork Solutions on Jul 21, 2015 11:55:00 AM

Most Workers are Employees!

The US Department of Labor's Administrator of the Wage and Hour Division, David Weil, clearly stated on July 15, 2015 that most workers are considered employees under the Fair Labor Standards Act, as he issued new guidelines aimed at limiting the misclassification of workers as independent contractors.

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Topics: worker misclassification, worker misclassification independent contractor, senior home care

The Worst Advice We've Ever Heard About Senior Home Caregiver Payroll

Posted by HomeWork Solutions on Feb 5, 2015 1:30:00 PM

It's been called the Silver Tsunami - America's 65+ demographic, which currently accounts for 13 percent of the overall population, is expected account for more than 20 percent by 2050  according to the U.S. Census Bureau. Three quarters of that population strong prefers and expects to age in place, remaining in their homes and communities as long as possible. Many families turn to senior home caregivers to help their loved ones remain independent in a safe environment, especially when non-medical support is called for.

Once the caregiver is hired, questions remain about how to handle the senior caregiver's payroll. Families turn to senior home care referral agencies, accountants and geriatric care managers for guidance. HWS has heard some remarkably bad advice on senior caregiver payroll, advice that when followed often comes back to haunt the senior or their family members.

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Topics: worker misclassification, worker misclassification independent contractor, senior home caregiver, senior home-care workers

Case Study: 1099ing the Nanny

Posted by Mary Crowe, FPC on Dec 30, 2014 8:30:00 AM
HWS' Client Care Manager, Mary Crowe, shares the story of a client who issued her nanny a 1099 form, and later found herself on the wrong side of the IRS.

Our client, Linda M. came to us when her relationship with her nanny was in crisis over taxes. Linda lives in New Jersey and she hired her nanny in the fall and was paying her in cash every week. She has an accountant to handle her income taxes, and when she hired the nanny her accountant told her that everyone treats their nanny as an independent contractor.

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Topics: nanny w-2 form, worker misclassification, 1099 v w-2

Managing Trustee Risks with Privately Employed Caregivers

Posted by HomeWork Solutions on Sep 23, 2014 5:34:00 PM

Do you hire, manage and issue payroll to a beneficiary’s caregiver(s) in your capacity as a trustee? If so it is important to understand the legal and tax obligations this type of employment creates for both the trust and you personally.

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Topics: Special Needs Trust, caregiver payroll, worker misclassification, household payroll, workers compensation household employees

Nanny Misclassification and the 1099 Mistake

Posted by HomeWork Solutions on Jan 10, 2014 7:28:00 AM

W-2_(1)Tax season is in full swing, and Americans are preparing to file their annual income tax returns. If you are a household employer - you employ a nanny, housekeeper or senior caregiver - you will find conflicting advice on how to handle the "nanny taxes."

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Topics: household employee, worker misclassification, independent contractor, nanny tax, nanny taxes, 1099 v w-2

Elder Care Hiring: Employee or Independent Contractor

Posted by HomeWork Solutions on Sep 11, 2013 3:07:00 PM
The IRS is increasing its focus on improperly classified domestic workers, including those hired to as senior home care professionals.

An adult 18 years of age or older who works in your private home and to whom you pay more than $1900 in cash wages (as of 2014) per year is subject to payroll tax obligations.  Distinguishing between an independent contractor and an employee is crucial to remaining in compliance with IRS regulations.

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Topics: worker misclassification, worker misclassification independent contractor, 1099 v w-2, household independent contractor, senior home care, senior home-care workers

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