The IRS is increasing its focus on improperly classified domestic workers, including those hired as senior home care professionals. As an employer of a household employee, you must be aware of these changes for tax season.
An adult over 18 years of age who works in your private home and to whom you pay more than $2,600 (2022) 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 can a senior caregiver be an independent contractor?
In general, a worker is presumed to be an employee except in situations where the person or family employing the in-home care worker 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 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 worker’s services are outside of the household’s typical 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 by the household, or by a third-party payment processor 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 they are really an employee.
See caregiver contract of employment forms here.
The risks of misclassifying a senior caregiver
Be aware that incorrectly designating a senior caregiver as an independent contractor instead of an employee can come with serious consequences. Though designating your senior caregiver as an independent contractor may seem easier from your standpoint, you must look at the situation from the IRS’s perspective.
If you fail to report a senior care worker properly when filing taxes, you may face tax evasion penalties from the IRS, which can include back taxes, interest, and other fees. Further, misclassifying your senior caregiver as an independent contractor means they will be covered under workers’ compensation insurance. If they get hurt while working, you could be responsible for associated expenses, including medical bills.
However, you are not the only one who faces legal risks due to misclassification. Any home health caregiver who incorrectly files as an independent contractor will pay more taxes, and they will not be able to access potentially essential government benefits, such as unemployment insurance.
Note that you should be proactive about taxes even when you hired your in-home caregiver through an agency. Be sure to inquire about the agency’s tax policies — some agencies will take care of taxes for their employees, and others will only be responsible for helping care workers find employment. If it is your job to file employee taxes, you should know what that role entails.
Ultimately, classifying your household employee as an independent contractor can create several issues. By properly designating your senior care worker as an employee during tax season, you can avoid future financial and legal problems. Further, your in-home caregiver can pay fewer taxes and enjoy government benefits while knowing you acknowledge their hard work and dedication to your family.
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.
If you still have questions about whether your home health aide is an independent contractor or an employee, HomeWork Solutions has numerous resources for senior care employers that can help you learn more about your role. Additionally, you can download the free guide to privately hiring elder care workers for more information on the requirements for tax, payroll and record-keeping requirements.
Contact HomeWork Solutions today
The team at HomeWork Solutions can help you properly designate your home care employees to comply with IRS regulations and meet other necessary tax requirements. Our services can help you manage all of your tax-related needs when it comes to employing in-home care workers.
If you would like to learn more, contact us today via our online form.
Companionship Care: Minimum Wage and Overtime by State
Overtime Rules for Senior Caregivers
Payroll for Privately Employed Senior Caregivers