Nanny taxes don’t just apply to nannies.
While most household employees are nannies (that’s how nanny taxes and nanny payroll got their names), any person who works in someone else’s home could be considered an employee. That can include senior caregivers among others.
Who is your senior caregiver’s employer?
You have a few options on finding senior care. Depending on how you bring on board an in-home caregiver will determine whether you are now an employer. This means processing payroll, paying taxes, carrying insurance, and other considerations.
Hiring through a home health care agency
A home health care agency will employ the caregiver to work in the senior’s home and take care of paying the employee and filing taxes as well as compliance with tax, wage, and labor laws. In this case, the agency controls the job duties of the employee. The agency will select the caregiver and send them to your senior’s home. However, you may not get the same caregiver every time. The agency is the caregiver’s employer.
Hiring through a referral or placement agency
A referral or placement agency recruits the senior care worker on behalf of the family. They charge a fee for this service and then hand over control of employment to the family who is then responsible for payroll, taxes, insurance, and compliance. The caregiver is an employee of the senior or their family.
By doing it themselves, a family finds, recruits, and hires the senior care worker without the assistance of an agency. The family will also take care of payroll, taxes, insurance, and compliance. The caregiver is an employee of the senior or their family.
Are you or the senior receiving care considered the employer?
If you have a household employee, you’ll need to establish employer status. This is determined by who is giving direction to the senior caregiver. Typically, the person receiving care is the employer. However, if the senior is unable to give direction, an adult child can be considered the employer. Or, if the senior is being cared for in their child’s home, then the child is the employer because the caregiver is working in their home.
Will the senior caregiver exceed the IRS’ Employment Coverage Threshold?
Every year, the IRS sets its Employment Coverage Threshold. For 2019, the household employee coverage threshold amount is $2,100. If your worker exceeds that amount in earnings, then you’ll need to withhold Social Security and Medicare taxes from your employee’s wages and pay the same amount as an employer. The total amount is 15.3 percent of cash wages split evenly between employer and employee (each paying 7.65 percent).
Also, if your employee will make more than $1,000 in any calendar quarter, you’ll owe federal (FUTA) and state unemployment taxes (SUI). FUTA is six percent on the first $7,000 in wages. SUI rates and thresholds vary by state.
Are there exceptions?
If your in-home senior caregiver is considered your employee but is your spouse, child under the age of 21, or any employee under the age of 18, then you don’t need to count their wages for nanny tax purposes. For unemployment taxes, don’t count wages paid to your spouse or a child under the age of 21.
Can you consider an in-home senior caregiver an independent contractor?
It may seem easy to simply classify your in-home senior caregiver as an independent contractor, issue a Form 1099 at the end of the year, and avoid any tax obligation.
However, misclassifying your worker as an independent contractor is considered federal tax evasion. Almost all household workers are considered to be employees and not independent contractors. That’s because the employer (family) sets the worker’s schedule, gives direction on how the work is to be done and provides the tools and equipment to do the job. It’s a matter of control and the family has it.
Let’s look at how this applies to an in-home caregiver and a physical therapist hired to care for an elderly loved one.
The family tells the senior care worker what their elderly loved one in need of care can eat; medicines they need to take; and other parameters on how they want their senior to be looked after. The family also determines the care worker’s schedule. They may want someone to work during weekdays or provide overnight care. And the senior care worker will use the family’s kitchen and utensils to prepare meals and their cleaning supplies if they need to clean up at all during their shift.
In this case, the family is in control of the employment and the senior care worker is their employee.
A physical therapist who is hired by a family to provide care for an elderly loved one decides the best course of action to treat the senior. They’ll determine exercises and other instructions for the senior and the family to follow. The physical therapist sees multiple patients in a week and will determine the day and time when they can see the patient. This could change weekly. The physical therapist will also use their own equipment and supplies to treat their patient.
Here, the physical therapist may be considered an independent contractor as they have control of the work relationship.
If you have any doubts about your worker’s classification, complete Form SS-8 with the IRS.
Do you understand the other nuances of being a household employer?
Household employers need to follow tax, wage, and labor laws that pertain to domestic employment. There could be a Domestic Workers’ Bill of Rights in your state, workers’ compensation rules, minimum wage and overtime guidelines, paid family and medical leave laws, and more.
That’s why we’ve put together a Senior Care Tax and Payroll Guide to help you navigate becoming an employer and paying your employee the right way.
Did you know there are several ways to reduce your tax obligations?
When you pay your senior caregiver the right way, you may be able to take advantage of tax savings programs and tax breaks and offset your tax liability. You may be able to apply one or more of the following:
Medical care tax deduction
You may be able to deduct expenses you paid during the year for medical and dental care for yourself, your spouse, and your dependents. Read more on Medical and Dental Expenses.
Medical Care or Health Care Flexible Spending Account (FSA)
With a Medical Care or Health Care FSA offered through your employer you can pay your elderly loved one’s medical expenses that aren’t covered by insurance. The senior must qualify as your dependent.
Dependent Care FSA
If the person receiving care:
- lives with you
- is physically and mentally unable to care for themselves
- requires a caregiver to care for them so you can work
then you may be able to pay some of their expenses with a Dependent Care FSA offered through your employer.
Child and Dependent Care Tax Credit
The senior in your care may be a qualifying individual under the Child and Dependent Care Tax Credit. Your elderly loved one must be physically or mentally incapable of self-care, lived with you for more than half of the year, and is either your dependent or could have been your dependent under certain exceptions.
These are potential options for you to reduce your tax obligation as a household employer. You should speak with your accountant to determine your eligibility for these tax breaks and savings programs.
GTM can help
Are you hiring a senior caregiver and will be considered their employer? GTM Payroll Services can help. Get a complimentary, no-obligation consultation with a household employment expert by calling (800) 929-9213. We’ll guide you through your responsibilities as an employer, answer all of your questions, and show you how GTM can help you save time and skip the hassles of complying with the tax, wage, and labor laws around household employment.
Hiring a senior caregiver?
Download our complimentary Senior Care Payroll and Tax Guide. In this new guide, we lay out the steps on how to comply with tax, wage, and labor laws when you hire an in-home senior caregiver.