Many of us may need to utilize persons who perform a variety of services in our homes. The services include child care, adult health care, pet care, housekeeping and personal assisting to name a few. As the population ages, and the wide preference is to remain in one’s home as long as possible rather than going to a nursing home or assisted living, the use of home based healthcare is increasing at a rapid rate. Be it for our own care or to assist one’s aging parents, we caution you to be aware of the special and changing rules regarding the hiring of household services. Correspondingly for young families, both spouses typically are in the workforce and need help in the home either for childcare or housekeeping services. This matter is lengthy and somewhat complex, but let us begin the conversation for you.
It is a common held belief that persons who work in your home can be treated as independent contractors where you pay the person a given hourly rate and the service provider is responsible for the filing and reporting of taxes with taxing authorities. This belief is an outdated belief and requires verification with today’s rules. In general, if you have control of the service provider – direct how, when and where the work should be performed – you are in effect a household employer. Several states including Massachusetts have passed Domestic Bill of Rights Legislation to enforce laws to ensure proper pay practices for employees working in the home. Misclassifying these employees as independent contractors is viewed by the IRS as tax evasion. In effect, you are like a small business and need to handle administration of payroll, withholding taxes, preparing tax forms, complying with the tax code.
Services can be obtained by using companies that handle the payroll and taxes for persons working in the home; but these services increase the hourly rates. If you obtain services through an agency, verify who is responsible for paying and filing all taxes.
Some common mistakes to be avoided
- File W-2 not 1099 – if the service provider earns more than $1,900 in a calendar year, the family needs to report wages and prepare a W-2.
- Overtime – if service provider works more than 40 hours per week he or she should be paid overtime at 1.5 times the hourly rate.
- If you are a small business owner, do not pay the caregiver through the company payroll.
- Don’t wait until April 15 to deal with employer payroll taxes.
- Obtain Workers Compensation Insurance.
Domestic Payroll Service Providers – many firms specialize in providing the service to manage payroll and household employee taxes. They include:
http://payroll.intuit.com/payroll-services/household-payroll
http://www.homeworksolutions.com/what-we-do/household-employee-payroll-tax-preparation/
Resources
http://www.irs.gov/pub/irs-pdf/p926.pdf
