Employing a nanny or an elder-care giver may seem like a simple proposition, but in the eyes of the IRS it isn’t.
Is it the your responsibility as a home-care employer to report workers’ earnings to the IRS? Should the worker receive a 1099 tax form or a W-2? Is he or she an employee or an independent contractor?
Taxes for household employees are often dubbed the “nanny tax,” although that is a misnomer because it applies to any type of household employment. Anyone who pays a household employee more than $2,000 a year (raised from $1,900 last year) is considered an employer.
For those who top this income limit, determining whether someone is an independent contractor or an employee is a little more nuanced. The person is an independent contractor and receives a 1099 form if she brings her own equipment to the job, sets her own hours and can send a substitute to do the work, among other things. The employer does not have to withhold any taxes.
If the homeowner defines the job responsibilities and controls the details, such as when the worker shows up, then she is an employee and should receive a W-2 form. The homeowner is responsible for withholding taxes and for reporting to the IRS. Typically, Social Security and Medicare (collectively known as FICA) and federal and state income taxes are withheld from the employee each pay period. The employer has to pay a matching portion of FICA, as well as pay federal and state unemployment insurance taxes.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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