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I am thankful for all the information and links that you guys are providing.
Pub 15-A, under the Statutory Non-Employee definitions:
"Companion sitters.
Companion sitters are individuals
who furnish personal attendance, companionship, or
household care services to children or to individuals who
are elderly or disabled ... Companion
sitters who are not employees of a companion sitting
placement service are generally treated as self-employed
for all federal tax purposes"
In addition, most caregivers perform their caregiving in a home, therefor coming under the "household 'employee'" criteria .. which sort of contradicts this.
So, I'm confuzzled.
If I am wrong about that, then the only thing preventing you from filing an amended return for last year would be when that regulation or law took effect.
Sorry I can't answer but just raise more questions.
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Family-Caregivers-and-Self-Employment-Tax
Makes it sound like a caregiver who meets certain criteria (ie: doesn't own a business of caregiving) can be deemed a non-employee via a 1099-MISC, Box 7 - nonemployee compensation, who must then report it on a 1040 as other income .. NOT self-employment, therefore not obligated to pay self-employment taxes.
Did I read that right? Here's our case: two live-in caregivers (non-professional status, not a business) who receive stipend compensation (well under the $10K cap for filing a tax return) for caring for a friend. Last year, we received the 1099-Misc (box 7), but we both interpreted it as 'self-employment' and did what we 'had' to do regarding filing income and SE taxes.
First question is: are we entitled to an exempt status as caregivers?
Second question: can last year's filing be amended to the same status?
The amount of Soc. Sec. to wihhold from employee pay is 6.2%; Medicare is 1.45%. For example: weekly payroll to a caregiver is $300.00. You would calculate both the SS amount (300.00 x .062) = 18.60 and Medicare amount (300.00 x .0145) = 4.35. The net pay to the caregiver would be $277.05.
You can pay in the tax liability online to the IRS each month. Each month is either 4 or 5 weeks (generally 13 weeks per quarter). For a 4 week month your payroll tax to be remitted would be the amount you withheld from the caregiver pay for SS (74.40) plus your matching amount, and the Medicare amount withheld (17.40) plus your matching amount. So the total payroll tax liability to pay in to the IRS for a 4 week month is 183.60 (total due is Social Security of 12.4% and Medicare 2.9% -the employee withholding plus your matching expense amount).
You are not required to withhold Federal Income tax from caregiver pay, but can do so if the employee asks you to do so. (You do not match that amount -you only pay it in for the employee if you have withheld it).
There is also a FUTA tax you will be liable for on an annual return. It is a small percentage of the first $7,000 (maximum) of each employees gross wages. It is not withheld and is an Employer payroll tax expense.
You will also need to check with your individual State to find what you will need to do on a State level. At a minimum you will probably have a payroll tax expense for State Unemployment (like FUTA it is calculated on gross wages and has a set maximum wage amount that can be charged). It is not an amount that is wihheld from employee wages and it is also an Employer expense.
Hope this will help and that I didn't confuse you with my explanation.
And I know many people prefer to pay under the table -and that works until a worker decides they need to show some (or more) income to qualify for government benefits or earned income credit, etc. Then they 'turn in' the employer and the employer gets tagged with paying ALL of the taxes they should have withheld as well as penalties for trying to avoid reporting and filing payroll tax returns. The employer is also missing the tax benefit of the payroll & payroll tax deduction.
All I have been saying is that your situation may be different, but a caregiver that has not been obtained through an agency is generally considered an employee and it is best to talk to a professional who has adequate knowledge about the subject to get proper information about their situation. Or at least read the IRS rules about caregivers & employees/independent contractors. After that they can do whatever they want -i.e. they are the ones who will be responsible for any legal repercussions so it would help to at least make an informed decision.
I didn't mean to be mean about what you posted, but it needed further clarification.
Many care providers they do not ever want to pay taxes or have any income surface at all no matter whether 1099 or w-2. They want to be paid under the table. If you tell them they have to fill out a I-9, w-9 etc, they are gone. If you W-2 them after the fact, I bet a lot will be some kinda upset as they have issues because it can affect other benefits they are getting for being low income.
Information about caregiver wages is provided in IRS Publication 926 which is very easy to find on the internet or at the IRS website. Good luck to you and don't forget to check on the deductions for caregiver wages & payroll tax expenses and also to look at the dependency rules -one of you may be able to claim your mother as a dependent (or possibly take turns). A little professional advice can be very helpful.
All of 2012 and part of 2011 we privately paid a woman to go in and help my mom with taking care of my father. We paid her $250/week for four hours daily, seven days a week. I definitely need to seek the advise of an accountant. Things are getting too complicated for me.
Igloo, again, sorry, but I believe you really need further advice. I'm concerned because others may rely on what you have written. The substance of an issue cannot be ignored -i.e. employee or non-employee. If you previously issued 1099's with no problems, well, maybe it was correct for your situation or then again, Not Every One Gets Caught. If an issue should come up due to a mistake, it can be quite expensive. Ignorance of the law is not a defense.
I'm not sure what you believe the inc (corporation) and LLC (a State function, not a federal entity) have to do with contract labor vs employee because I can assure you the entity type (vehicle) does not make a difference. As for a Trust, Schedule H (Form 1040) is also used to report household wages with Form 1041 (Trust). See the Schedule G part of your trust tax return Form 1041.
All I'm saying is that people should discuss their individual situation with someone who has adequate information to properly advise them whether payments should be considered W-2 wages or if a 1099 is appropriate. After many years of accounting practice I can safely advise that it is easier and cheaper to report payments to individuals according to the regs -this is not a gray area. It's also not that difficult or expensive to report wages correctly.
Caregiver payments fall under the category of Household and are considered wages subjet to social security & medicare withholding (Form W-2). Schedule H can be used to report the wages (by itself or attached with your Form 1040 tax return). Publication 926 can provide useful information about reporting and withholding requirements. Form SS-4 is an application for a federal EIN (employee identification number) which will be needed to file Schedule H; Form W-4 is completed by the employee to provide you with their SS# and address information; Form I-9 is a verification form that may be needed to determine if the employee is a US citizen or eligible to legally work in the United States. Check with your State to determine their filing requirements for State taxes and unemployment (SUTA).
If you have contracted with an agency or other 3rd party agent for a caregiver, they are generally responsible for the withholding on the individual(s) they provided for you and you can issue the agency a 1099 for the payments you made directly to them.
Additionally, there could be other tax considerations, particularly involving deductibility of these types of expenses, and it would be advisable to discuss them with a tax professional.
f-y-i, I am a CPA.
IRS Form 926, Household Employer's Tax Guide: http://www.irs.gov/pub/irs-pdf/p926.pdf
If you or your parent pay for a caregiver directly, then they should be considered contract labor & any money paid over $600 per year should have a 1099 issued by January 31 of the following year.$600 is the threshold for 1099's, under $600, no 1099. Just in case, you should look at the IRS guidelines for contract labor vs. employee. Contract labor is kinda easier to deal with.
So if in 2012 you paid Sally, the retired nurse neighbor, $8,000 for caregiving for your mom, then Sally should get a 1099 for 8K from you and it should have been mailed to Sally by 1/31/13. Sally is responsible for reporting this as income on her taxes and paying whatever tax liability she has because of it.
What you need to provide to Sally is a W-9 - Request for Taxpayer ID #. There is also another form, the I-9, that gets used to vett citizenship for Homeland Security
for any contact labor or employees hired in the US. You can go on-line to download & print these. You give them to Sally, she fills them out and you keep both in your tax file somewhere.
For my mom, when she was still living @ home, the caregivers were with an agency so nothing had to be done by myself or my mom. I have a business and use contract labor on projects, they have to do the W-9 and I-9 and submit it to me before they will get paid. No excuses either. Then they get a 1099 in January for all money paid to them, fees, expenses, whatever as 1 sum. It's up to them to report it as income and figure out their expenses or deductions to do their taxes and pay the tax liability on that income. I've done my part required by the feds and the contract labor is a business expense deduction. I am not responsible for paying any of their tax liability.
One problem is those folks who want to be paid under-the-table for whatever reason. that's a decision only you can make as to whether to do it or not. But keep in mind, that if mom does this for years and years and the amounts add up, IF she applies for Medicaid, you may have to provide documentation that the amounts paid to Sally were for caregiving so that it isn't viewed as gifting. So you need to keep records. Good luck.