Numerous people and families rely on in-home carers for assistance. Learn more about the tax implications of employing a caregiver.
What you will discover:
Are home health aides employees of the person or family they assist?
Is a caregiver considered an independent contractor?
Is it necessary to withhold and pay taxes on the salary of a caregiver?
Is it necessary to provide a 1099 to a caregiver?
Is there a tax break or credit for paying a caregiver?
Are there any specific regulations if the caregiver is caring for a family member?
Hiring an in-home caretaker may be costly and perplexing. Many of the tax and payroll difficulties will be handled by the caregiver’s employer if you hire a caregiver via a certified home care organization. However, hiring via a home care organization is sometimes substantially more expensive than employing an individual caregiver. There will be legal factors to consider if you engage an independent caregiver, such as having a Home Healthcare Contract. There may also be several tax and employment issues that you must address. Answers to some of the most frequent tax and employment issues that occur when employing an independent in-home caregiver are provided here.
Table of Contents
Are home health aides employees of the person or family they assist?
Home health aides and other in-home carers are hired by individuals or families via a certified home care organization or as independent in-home caregivers. If you engage a caregiver via a home care firm, the caregiver may not be your employee, but rather their employer’s customer. Hiring an independent caregiver, on the other hand, often turns that individual become an employee of your home. Even if they sign a contract or are an independent contractor, having a home employee implies you are that person’s employer.
Is a caregiver considered an independent contractor?
Independent contractors are uncommon among in-home caregivers. If you have the authority to instruct the caregiver when and how they must work, you most certainly have an employer-employee relationship. In this scenario, the caregiver is not an independent contractor.
It is critical to determine if a caregiver is an independent contractor or an employee. Misclassifying a home employee as an independent contractor might result in severe fines. You may consult an attorney if you are unclear whether a caregiver is an independent contractor or a household employee.
Is it necessary to withhold and pay taxes on the salary of a caregiver?
The amount of money received by the caregiver throughout the tax year determines whether you must withhold and pay taxes on the caregiver’s income. If the caregiver’s earnings are less than $2,400 in 2022, neither you nor the caregiver are obliged to pay Medicare or Social Security taxes. If you pay the caregiver more than $2,400 in 2022, you must withhold and pay Medicare and Social Security taxes on their salary. Medicare and Social Security taxes total 15.3% of the caregiver’s earnings. In most cases, you and the caregiver will both pay half of the 15.3%.
In addition to Medicare and Social Security taxes, if you pay more than $1,000 in earnings to a caregiver in any quarter during the tax year, you must additionally pay federal unemployment taxes (FUTA) on the caregiver’s salary. For the first $7,000 paid to the caregiver, FUTA is 6%. This sum is paid entirely by you, not by the caregiver.
When you engage an independent in-home caregiver, you become the caregiver’s employer, which involves tax obligations that might be complicated and intricate. You should consult with a tax professional to assess the tax implications of your unique circumstances.
Is it necessary to provide a 1099 to a caregiver?
Taxpayers often think that if they engage a caregiver who is an independent contractor, they must issue a Form 1099-NEC to the caregiver. However, Form 1099-NEC is seldom needed to be sent to a caregiver. Form 1099-NEC is used by businesses to record nonemployee payments. Because you employ an in-home caregiver, you are not a business taxpayer. As a result, you usually do not need to submit a 1099-NEC.
If the caregiver is really an independent contractor and not a household employee, the amount paid by you will be reported as income and the caregiver will be liable for their own self-employment taxes.
The caregiver is usually considered as a household employee, and you must present them with a W-2 form.
Is there a tax break or credit for paying a caregiver?
Taxpayers often miss deductions and credits for caregiver expenditures. These deductions and credits, however, may help to minimize the financial burden of employing an in-home caregiver. On the tax return of the individual who employs and pays the caregiver, caregiver costs may result in a child and dependent care credit or a medical deduction. However, the IRS has said that the same item may not be eligible for both the child and dependent care credit and the medical deduction.
If you paid a caregiver to look after a qualified person who falls into one of the three categories listed below, you may be eligible for the child and dependent care credit.
Your dependant kid under the age of 13.
Your spouse who is physically or psychologically incapable of caring for themselves and has lived with you for more than half the year.
An person who is physically or psychologically incapable of self-care, resided with you for more than half the year, was or might have been your dependent with specific exclusions, and was your dependant. The IRS has further information on the child and dependent care credit.
The child and dependent care credit is worth up to $3,000 if the caregiver cared for one qualified individual and $6,000 if the caregiver cared for more than one qualifying person in 2022. It should be noted that the child and dependent care credit was briefly boosted for 2021, but has since restored to its previous levels for 2022.
Certain requirements must be satisfied before you may deduct caregiver pay as medical costs. First and foremost, the caregiver must generally provide services as recommended by a registered healthcare practitioner. The medical expenditures must then be for your dependant, which includes an eligible adult dependent. Finally, in order to profit from deducting medical expenditures, you must itemize deductions rather than take the standard deduction.
Are there any specific regulations if the caregiver is caring for a family member?
Yes, there are unique regulations that may apply if the caregiver is a family member. Often, Medicare and Social Security taxes are not needed to be paid on earnings for a family caregiver. Wages for caregivers are still recorded on Form W-2 and are taxable to the caregiver. If you hire a caregiver who is related to the person being cared for, you should contact with a tax professional to determine if your unique circumstances require you to withhold employment taxes on the caregiver’s salary.
