In-home caregiver helping with household taxes

Withholding and paying employment taxes is not exactly what I’d consider fun. I’ve dealt with this on both a professional and a personal level. After employing a private-duty caregiver to take care of a loved one, I understand the complexity of household employment taxes. As the owner of Home Care Assist, I hear from clients all the time about the the special tax issues involved when independently hiring in-home care. It is something that you have to be prepared for when you’re making your decision about whom you should hire. In this post, I outline some of the critical questions you need to ask about paying household employment taxes for in-home caregivers.

There are two categories of caregivers — those employed by an agency and those employed privately. Special rules apply to workers who perform in-home care for elderly and disabled individuals. Household employers who pay $2,000 or more in annual wages to an in-home caregiver are responsible for both withholding and paying taxes. Private-duty, in-home caregivers are not categorized as independent contractors. They are categorized as household employees. As the employer, it is your obligation to calculate and file taxes. This includes Social Security, Medicare, Unemployment, and Federal/State taxes.

General Considerations for Paying Household Employment Tax

THE EMPLOYER
First, determine who the employer is. A care recipient, alone and receiving hired care within the home, is the employer.  Alternatively, a spouse or an adult child who supervises the care is considered the employer. Once determined, you will need to get an Employer Identification Number (EIN) from the IRS.

WORKER’S COMP INSURANCE
This protects both the employee and the employer in case of an on-the-job injury. Some homeowner’s policies may include coverage for in-home caregivers. Check with your insurance agent to see if your policy includes a “worker’s comp addendum”.

EMPLOYMENT VERIFICATION
The I-9 form determines a worker’s eligibility for working within the United States. This form is completed by both you and your caregiver. The I-9 is kept on file within the home.

TAX WITHHOLDING
As the employer, you calculate and withhold taxes for the caregiver. Social Security, Medicare (FICA), and Federal/State taxes are all included.

Household Tax Requirements for Hiring In-Home Caregivers

UNEMPLOYMENT COMPENSATION
Use the 1040-ES form to calculate and pay estimated quarterly taxes
 for unemployment compensation. Alternatively, you can pay annually.

STATE UNEMPLOYMENT TAX
As the employer, you must pay state unemployment tax for your in-home caregiver. Report any income tax withheld from their paychecks. Check with your state’s Department of Revenue for more information.

W-2
Typically, an employer provides an independent worker with a 1099 form at year end. However, in the case of independent, in-home caregivers, the IRS requires a W-2 to be filed.

W-3 and W-2 Copy A
Prepare and file these forms with the Social Security Administration. You may also have to file an annual reconciliation form with the state to summarize your tax activity for the year. Be sure to check your state’s requirements.

Schedule H
As a household employer, you will file a Schedule H form along with your personal income tax returns. Use this schedule to report all household employment taxes that were paid to or withheld from a household employee.

Household employment tax must be considered when hiring an independent, in-home caregiver
Household employment tax must be considered when hiring an independent, in-home caregiver.

The relationships between the family, the person who requires assistance, and the in-home worker are all very important. When hiring an independent, in-home caregiver, you should feel comfortable with vetting the individual and providing training, as well as managing payroll and taxes. When my loved-one needed care, it was a surprise to learn that private-duty caregivers required special tax consideration. Here, at Home Care Assist, we hope to provide useful information and professional assistance in the search for the right caregiver.