Susan G. is a licensed social worker and a new mom who came to HomeWork Solutions when she and her husband hired a nanny so she could go back to work. Susan and her husband found the ideal nanny via a neighborhood list serve and readily agreed to her request for a weekly wage of $600 take home after taxes. Susan found that getting all of the reporting and tax calculations right – particularly when working from a net take home pay – proved to be a headache.

Mike and Joyce R. hired a caregiver to help Mike’s mom at home when she came to live with them after her husband passed away. They agreed with the caregiver at the time that they were going to pay her $500 a week off the books. She worked out wonderfully and she stayed with Mike’s mom for almost three years, and was let go with a generous severance when Mike’s mom had to enter a nursing home.

“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’ household employee payroll service 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.

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...

Request a Free Telephone Consultation with a Household Payroll Expert

Independent Contractor Decision Resources

US Department of Labor: Employee or Independent Contractor?

A Nanny Payroll Case Study

There’s no doubt about it. Nanny taxes are complicated. There are federal and state taxes, as well as federal and state labor laws that need to be upheld. For some families, while taxes can be a little overwhelming, they think that they can figure it out themselves. This can be done, but before you do it yourself, you need to know it all – the ins and outs of preparing nanny taxes. If not, the do it yourself method can go terribly wrong. Consider this case study of a family that thought they had a good understanding of tax filings, but in fact, ended up making some costly errors.

Generally, in life, it pays to do things right the first time. Your nanny payroll taxes are no exception to the rule: while it may be tempting to evade these pesky taxes, in the long run, you will be thankful that you managed your household employment taxes well. It will cost much more of your money, time, and patience to deal with the consequences of tax fraud than to file your payroll taxes correctly the first time around!

HWS' Client Care Manager, Mary Crowe, shares the story of a client who paid the nanny cash under the table, and later found himself on the wrong side of his state's unemployment agency.

Mike and Joyce R. hired a nanny when their twins were infants. They agreed with the nanny at the time that they were going to pay her $500 a week off the books. The nanny worked out wonderfully and she stayed with Mike and Joyce for almost three years, and was let go when the twins started a full-time pre-school/daycare situation. The family’s needs had changed, and they found another very part-time nanny to cover the afterschool hours.