The IRS is increasing its focus on improperly classified domestic workers, including those hired as senior home care professionals.
An adult over 18 years of age who works in your private home and to whom you pay more than $2,300 (2021) in cash wages per year creates payroll tax obligations for the hiring family. Distinguishing between an independent contractor and an employee is crucial to remaining in compliance with IRS regulations.
When is a senior caregiver an independent contractor?
In general, a worker is presumed to be an employee except in situations where the family paying for services can demonstrate the worker’s true independence. Here are the required conditions under which a worker can be considered an independent contractor, or self contractor, where the employer is not responsible for payroll tax obligations:
- The employer must be able to prove that the worker performs services that the employer does not have the right to direct;
- The worker must maintain an independent business enterprise, including a workspace, outside the employer’s domain, with his/her own insurance;
- The services provided by the worker are outside the household’s usual course of business (i.e., work that is distinguished from the day to day operation of the household, such as carpenters, roofers, etc.).
Most senior caregivers who are paid directly by the household, or by a third party payment processor acting on behalf of the household, are employees, not independent contractors. The IRS has instituted new processes for finding and penalizing employers who improperly classify a worker as an independent contractor when he is really an employee. See caregiver contract of employment forms here.
Home care employer responsibilities
Generally, a senior home care worker who is hired to care for the day to day needs of an aging adult is an employee. As such, the employer, either the family or the agency, is responsible for employment taxes, record keeping and required insurance matters. This is true of most senior caregivers you hire privately, and also those senior caregivers you hire with the assistance of a registry service who may facilitate payments but is not the employer.
Download the free guide to privately hiring elder care workers for more information on the requirements for tax, payroll and record-keeping requirements.