When you or a loved one needs help with personal care, you may want to hire someone privately to help. Once you agree on a wage, it’s tempting to simply write that person a check or send a Venmo payment. STOP! When Hiring a Private Caregiver Follow the Rules.
Before you hire anyone privately, you need to determine whether this person is an employee. This matters. There are rules to follow and penalties to pay if you don’t.
What Makes a Caregiving An Employee?
In 2015 the U.S. Department of Labor clarified key conditions that determine whether a privately hired person is an employee or a contractor. Two of these conditions are significant for caregivers:
- Does the person (or the family) for whom services are performed (the employer) have the right to determine the actions of the person performing the services?
- Does the employer have the right to control how the services are provided?
In most caregiving situations, the answer to both questions is yes, making the caregiver an employee. This puts you, the employer, in the position of having to pay employment taxes and following other employment rules.
Caregivers, and other domestic employees such as companions, nannies and housecleaners, are not considered employees when they:
- Are the parent, spouse, or the child under 21 years old of the person receiving care.
- Control the work they perform, when they do it, and how they do it.
- Provide their own tools, equipment and supplies.
- Are self-employed.
- Offer their services to the public.
- Are employed by an agency.
Many private caregivers do not meet these conditions.
When Hiring a Private Caregiver Follow the Rules
When you have a private employee and you pay that person wages of $2,300 or more (in 2021), there are several rules you must follow. As an employer you are required to:
- Obtain an Employer Identification Number (EIN).
- Determine whether the worker is allowed to work in the United States and complete IRS Form I-9 with the employee.
- Withhold and pay Social Security and Medicare (FICA) taxes which are 15.3% of cash wages.
- The employer pays 7.65% – 6.2% for Social Security and 1.45% for Medicare.
- The employer withholds the remaining 7.65% from the employee’s wages.You can choose to pay your employee’s FICA taxes yourself and not withhold it.
- Pay applicable federal and state unemployment taxes on taxable wages.
- Appropriately manage income taxes:
- As a household employer, you are not required to withhold federal income tax from employees’ wages. You can do this if your household employee asks you to withhold it and you agree.
- You should consult with your accountant for state income tax withholding requirements.
- Purchase Workers’ Compensation Insurance. While some states make participation compulsory, voluntary participation in all other states is permitted and advised.
- File IRS Forms W-2 and W-3 annually by their due dates.
- File Schedule H annually with your personal income tax return.
- Maintain appropriate records to support tax filings.
The Penalties
There are penalties for ignoring relevant laws. Employers will generally be liable for the employment taxes you should have withheld and paid. Interest and penalties may also be charged.
Consult your accountant before you hire to discuss your situation and the potential caregiver’s duties and working conditions.
Hiring Through An Agency
For many people, hiring a caregiver through an agency is much simpler. The caregiver is an employee of the agency which will handle all tax obligations, Workers’ Compensation Insurance, and payroll and employment issues. All you need to do is pay the agency’s hourly rate.
Resources
If you decide to employ a private caregiver, Care.com/HomePay is a payroll service that specializes in domestic employees. Care.com/HomePay can also connect you with a Worker’s Compensation Insurance company.
For more information on federal requirements, consult IRS Publication 926 Household Employer’s Tax Guide.
This blog is published to provide you with general information only and is not intended to provide specific or comprehensive advice. Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.
