Why would anyone take on the risks and liabilities involved in hiring an in-home care worker for a loved one, who is neither screened, licensed or bonded? The classifieds are filled with people looking for work as aides to the elderly. The question is: Should you hire on of them? Some of these advertisers may be well-qualified and honest, who will do a good job; and some not so reputable. If you are looking to hire someone, be sure you interview and check references and qualifications. Be very sure you hire someone trustworthy, as the elderly seem to trust these helpers more than they should and therefore can easily be taken advantage of.
EMPLOYMENT ISSUES TO CONSIDER
In addition to the issues raised above, there are employment issues to consider when hiring an in-home care worker yourself. Many people are not aware that the IRS considers any person working in your home as a Household Employee, unless they meet one of the two exceptions:
- He or she is employed by another company who is paying their payroll taxes, Worker’s Compensation, etc for them; or
- He or she is self-employed as a viable business that promotes itself as providing these services to the public as a business, and provides these services to others, not just you.
Tax and Reporting Issues in Hiring Non-Professional In-Homecare Workers
- You, the household employer is responsible for paying the employer’s portion of social security tax imposed on the wages of a household employee. The portion is equal to 7.65 percent of the employee’s wages.
- In addition, a household employer must withhold an equivalent amount representing the employee’s portion of the social security amount. The employer may pay the employee’s share.
- You, the household employer must provide Worker’s Compensation coverage
- If you treat a worker as independent, and later the worker files a Worker’s Compensation claim or unemployment, the employment issue surfaces and you may have the government contacting you.
- (In determining if a household worker is an employee or independent contractor, the same twenty common law factors used by business also apply to household workers.
- If the worker did not claim their income on their tax return, you could be liable for the taxes, plus penalties for not filing a 1099, or a W-2 and payroll reports.
You will save yourself a lot of headaches and reporting, if you simply have a professional in-home care company supply a licensed, bonded, insured staff employee who has been screened for criminal activities, financial fraud, or other questionable activities.
MORE DETAILS REGARDING EMPLOYER RESPONSIBILITES
How to Report and Pay Your Taxes for Household Employees
- It is unlawful to knowingly hire or continue to employ an alien who cannot work legally work in the United States. A household employee, hired to work on a regular schedule, should complete the employee part of the Immigration and Naturalization Service (INS) Form I-9, Employment Eligibility Verification. The employer must verify the employee is either a U.S. citizen or an alien who can legally work, then complete Form I-9.
- Household employers must fill out Form SS-4 and submit it to the IRS to obtain an Employer Identification Number (EIN). The EIN is required on Forms W-2 and the Schedule H.
- A household employer should report social security and federal unemployment (FUTA) taxes for household employees on Schedule H which becomes part of the employer’s federal income tax return.
- The household employer should also prepare Form W-2 for each household employee and give it to the employee no later than January 31. Household employers should not file Form 942, Quarterly Tax Return for Household employees.
- Although there is not requirement to withhold federal income tax from wages paid to a household employee, if the employee requests taxes be withheld, and the employer agrees, the tax must be withheld from the wages paid. In this case the employee should fill out a Form W-4 so the employer can withhold the correct amount of tax from each paycheck.
- California did not conform to the federal simplification which allows you to report your household employee’s taxes on Schedule H of your individual tax return.
- California employers must register with EDD within 15 days after paying $750 in total wages to one or more employees. To register with EDD, complete a Registration Form for Employers of Household Workers (DE 1HW), or register online using the EDD’s e-Services for Business at https://eddservices.edd.ca.gov
- EDD will issue an eight digit account number which should be used on all forms or correspondence filed with EDD.
- Household employers can be liable to the CA EDD for up to three different kinds of taxes, SDI, Unemployment Insurance (UI) and Employment Training Tax (ETT).
- All registered employers are required to file an Annual Reconciliation Return, Form DE 7 no later than January 31 of the following year.
- Payment of UI, ETT, and SDI taxes are reported quarterly on Form DE 6.
- A household employer paying wages of $20,000 or less annually can file form DE 3BHW, Quarterly Report of Wages and Withholding, or DE 89 and, if qualified, pay all taxes at the end of the year with Form DE 3HW.
- If you pay $20,000or more for the year, then each quarter you need to file Payroll Tax Deposit (DE 88) with payment, and Quarterly Contribution Return and Report of Wages (DE 9, or DE 9C). Note: Effective 2011, quarterly filers no longer complete the Annual Reconciliation Statement (DE 7) at the end of the year.