When Mike and Joyce welcomed Mike’s mother into their home following the loss of her husband, they also hired a part-time caregiver to assist with some of her daily needs. Opting for simplicity in a challenging time and not realizing there were employment obligations, they agreed to a $500 weekly payment off the books—a decision that seemed mutually beneficial at the outset. The caregiver proved invaluable over the nearly three years she worked with them, parting ways amicably when Mike’s mother transitioned to a nursing facility.
However, the end to this seemingly stress-free hire became more complicated when their former caregiver, struggling to find new employment, applied for unemployment benefits, listing Mike and Joyce as her previous employers. This prompted an alarming letter from the state’s Department of Labor, plunging them into uncertainty and leading them to seek professional assistance.
Background:
Like many households, Mike and Joyce were intimidated by the complexity of household employment taxes and the prospect of handling them as busy professionals. Their decision to pay their employee off the books was initially out of a desire for simplicity. When this approach had unintended consequences, they contacted HomeWork Solutions, feeling anxious and betrayed by their caregiver’s actions. Upon consultation with HWS, they realized the gravity of their oversight, and that their former employee was only collecting benefits she was legally entitled to.
Challenge:
Our team explained that legally, the caregiver was considered an employee, making Mike and Joyce responsible for employment taxes amounting to approximately $12,000 over her tenure. If managed correctly from the start, about $5,000 of these taxes would have been deducted from the caregiver's paychecks. Now, these taxes shifted to being their responsibility, requiring them to cover the total amount themselves.
The solution involved amending three years of their tax returns, arranging for the caregiver to receive W-2 forms, and addressing the back taxes owed. Once the caregiver received the W-2s, she also had to amend her tax returns and remit her unpaid income taxes.
Solution:
Determined to rectify the situation, Mike enrolled in HomeWork Solutions’ household tax preparation services. Through detailed consultations with the HWS team, they reconstructed the caregiver’s pay history. Within two weeks, HomeWork Solutions had prepared all necessary back tax documents, allowing Mike to address the state unemployment taxes promptly.
This guidance prepared them for what to expect in terms of communication from the state about penalties and interest. Mike was also advised to coordinate with his personal accountant to file amended tax returns and arrange to pay these taxes, including any penalties.
Outcome:
After a few weeks, Mike reached out to us with an update on their progress. Their accountant had efficiently amended their tax returns and facilitated a payment plan with the IRS. This challenging experience taught Mike and Joyce a costly but invaluable lesson about the importance of proper payroll management.
Grateful for the support and expertise provided by HomeWork Solutions, Mike asked we share the following with prospective clients:
“HomeWork Solutions made solving this problem so simple – unbelievably simple. While it was stressful and very expensive, (HWS) helped us through this situation with patience and understanding. Our accountant reviewed HWS’ work and said they did a perfect job. These taxes are confusing, and if we had known how easy HWS is to work with, and how costly ignoring these taxes would be, we would have definitely made a different decision when we first hired Mom’s helper. I have already recommended them to my family and friends.”
Reflection:
This experience underscores the complexities of household employment taxes and the critical importance of handling them correctly from the start. At HomeWork Solutions, we are dedicated to simplifying these processes, ensuring our clients can focus on their families without the looming worry of tax complications. If you’re navigating similar challenges, let us help you turn complexity into simplicity.