Your are considering hiring caregivers for your parent, child, spouse or sibling. They live at home and require care — perhaps even nursing care. And their insurance and public benefits don’t cover all that they need.
Can you just hire individual caregivers and pay them in cash? If you want to do it the right way, does that mean you have to withhold taxes? How about Social Security and Medicare payments?
Are you hiring caregivers as independent contractors?
The first question to address is whether you can (or should) characterize a caregiver as an “independent contractor”. Or are caregivers always employees? And how can you know for sure?
It’s actually easier than you might think. The always-helpful Internal Revenue Service has a number of publications explaining the differences. And if you are hiring caregivers as individuals, it’s extremely unlikely that you are hiring them as independent contractors.
As the IRS points out, an independent contractor usually provides their own tools and supplies. They also decide what they do and how they do it. So if you supervise their caregiving (and of course you do), they are almost certainly an employee.
Perhaps you have hired a service, which in turn hires individuals (and supervises them). In that case — and pretty much in only that case — you have an independent contractor. Otherwise, assume you are hiring caregivers who are your employees.
What does mean if a caregiver is an employee?
Most importantly, it means that you have some obligations. They come from both federal and state law. They include:
- Withholding taxes. If you pay an employee more than $1,700 in a calendar year, you probably have to withhold taxes and file reports with the IRS.
- Social Security and Medicare taxes. You will have to pay half of these contributions, and withhold the other half from their wages.
- Unemployment and workers compensation insurance. State law will likely mandate that you have both kinds of insurance coverage available.
- Sick, vacation and personal leave time. Under state law (particularly in Arizona) you may be liable for providing (and keeping records about) sick leave, vacation and paid personal time off.
- You may not be required to provide retirement benefits, disability or other insurance. But once you have established a professional relationship with your employee(s) they may want to ask about these benefits.
The paperwork associated with hiring caregivers can become overwhelming. The good news: there are services that can handle all of the filing requirements for you. The bad news: they will charge a fee.
Aren’t there exceptions for hiring caregivers in the home?
There are some exceptions. But they mostly apply to hiring family members or very small payments (like the $1,700/year mentioned above).
If you are hiring caregivers to work at specific hours at your direction, you have employees. And if they are not relatives there are probably not any applicable exceptions.
But people do this all the time. What could go wrong?
As lawyers, we never advise people to ignore the law because they might not get caught. And getting caught mischaracterizing employees is very, very easy. How might things go wrong?
- Your employee could file a Form 8919 with the IRS, claiming that they should have been treated as an employee. Then you might be liable for all of the unpaid Social Security, Medicare and income taxes.
- Even if you treat the employee as an independent contractor, you might be required to give them a tax form each year — a Form 1099-NEC (sometimes a 1099-MISC). That form could trigger a review that identifies your employee as not an independent contractor.
- Your employee could get injured on the job. Back injuries, for instance, are notoriously common in personal caregiving work. The process of seeking care for their injury could reveal that you should have provided worker’s compensation insurance.
- If you later decide to fire the employee — or if the care is no longer needed — the caregiver might file for unemployment coverage. That could lead to a recognition that you should have been paying those benefits.
- If there are multiple caregivers, any investigation as to one could lead to cascading problems surrounding all of their employment arrangements.
- Do you plan on deducting the caregiver costs as medical expenses? Then you’ll want to do it right.
So the stakes are high. And you are potentially liable for making the wrong characterization. That liability could be personal to you, or could dramatically increase the cost of caregiving, but not be evident until long after the care was provided.
What if the caregiver doesn’t want to be an employee?
When hiring caregivers, you can’t let them decide not to have the rules apply to them. And why don’t they want to be an employee? Is it because they are collecting disability benefits? If so, they are asking you to participate in fraudulent activity. We think you should decline.
Perhaps the caregiver doesn’t want to have taxes withheld. But if they do work for you, they owe taxes on that income anyway. Once again, you should not be complicit in helping them to avoid their tax liability.
Maybe they just don’t want to pay anything toward their Social Security, Medicare or other benefits. But if they really were an independent contractor, they’d be liable for both halves of those payments — so getting treated as an employee is actually beneficial for them. Plus they get qualified for retirement and medical benefits when they retire or become disabled.
The employ you hire might insist that their take-home pay reaches some minimum level. They can get that if you pay them enough to cover all of those additional costs — which they should be paying anyway. And then neither you nor they are at risk for future tax or legal penalties.
