Caregiver: employee or independent contractor

[BasketCase24]

I’m POA/Trustee with FIL, all finances my gig. He lives with family member and spouse. His trust pays family member for “care”, which includes room and board, plus visits to doctor, etc. There is a contract, which calls caregiver independent contractor, responsible for all taxes and fees.

In my research, it seems IRS likes to call caregivers employees, but their “tests” lead me to independent contractor. One requires -1099, other requires W2 and tax and social security/ Medicare payments. Accountant leans to employee, family member wants 1099.

Advice? I’m not going to jail in name of family unity!

 

[38Chevy454]

Since the monthly(?) fees paid includes more than just labor (room and board, transportation, etc) it sure seems you are paying a lump sum amount that is 1099 type. Otherwise you would need to break out the labor part vs the non-labor part. This situation for your FIL is not just a simple caregiver situation, it includes more. That's my $.02

 

[cathy63]

I agree that the family member is a contractor. The trust should issue them a 1099-MISC.

The family member is the one with the tax dilemma. If they report the entire 1099-MISC amount as "other income", I don't think they can deduct anything for their expenses. If they report it on Schedule C as a business, then they could deduct for mileage, food, etc, but they'd have to pay self-employment tax.

 

[OldShooter]

It drives the CPAs bonkers but my approach to any question like this is to interpret the situation to my benefit and count on the fact that an audit is highly unlikely. In the event the IRS comes calling, my speech is: "Gee, I didn't understand it that way. What do I need to do to fix it?"

"For all returns filed for Tax Years 2010 through 2018, the IRS examined 0.60 percent of individual returns ... " https://www.irs.gov/statistics/compliance-presence

Along the same lines, I am pretty sure that the IRA understands cost/benefit calculations. Other than being caught by statistical sampling, why would they try to filch dimes out of old retirees' pockets when there are big fish to fry on their independent contractor griddle?

 

[Sunset]

I agree that the family member is a contractor. The trust should issue them a 1099-MISC.

The family member is the one with the tax dilemma. If they report the entire 1099-MISC amount as "other income", I don't think they can deduct anything for their expenses. If they report it on Schedule C as a business, then they could deduct for mileage, food, etc, but they'd have to pay self-employment tax.

If they report it as Schedule C income, then they get the advantage of opening a self-401K and contributing to IRA/ROTH versions, of the self-401K.

 

[Stormy Kromer]

I live in MN


The MN Dept of Labor and Industry has guidelines regarding employee vs Independent Contractors specifically regarding domestic employees.


This is mostly used to determine if you need to determine if you need to provide workers compensation insurance, not so much for tax purposes.


Talk to your FIL's insurance agent and ask if the care provider is an independent contractor or employee. You may need to provide workers compensation insurance for them as employees. The Department of Labor could help you with this.


Does this "Independent Contractor" provide their own tools and set their own hours? Do they provide you with a certificate of general liability insurance and provide their own workers compensation insurance for their employees and sub contractors?

 

[firemediceric]

I can tell you that in my role as a registered professional guardian on the advice of the attorneys who represent me I will only use an agency and not a registry to provide caregivers in Florida. The difference being that an agency employs the caregivers taking care of the taxes and workers comp insurance as well as having liability insurance. The agency will also be bonded.

A registry is just that; a registry of caregivers who want to work. They are subcontractors responsible for their own taxes and insurance. They carry no liability insurance. I will not use a registry to provide personnel as it leaves the ward exposed to tax liabilities and potential workers comp type claims for an on the job injury. If they cause injury to the ward or steal from the ward the registry washes their hands of the matter and bears no responsibility putting it all on the registered care giver who has no assets.

 

[pjm-7]

Contractor vs. Employee. Having spent years auditing this here is my perspective. A contractor is independent by contract and by FACT. That is, there must be a material fact that the person is independent. Also, does the contractor hold themselves out to the public to be independent. Unless the caregiver can meet these tests then they are an employee. The employer is responsible for social security, medicare taxes, unemployment insurance taxes and workers compensation coverage.

It always seems easy to say that someone is a contractor until something goes wrong such as a workers compensation claim. The labor should be seperate from the other costs. Either declare the labor as an employee or hire an agency to handle the labor aspect of the care.

 

[pb4uski]

I’m POA/Trustee with FIL, all finances my gig. He lives with family member and spouse. His trust pays family member for “care”, which includes room and board, plus visits to doctor, etc. There is a contract, which calls caregiver independent contractor, responsible for all taxes and fees.

In my research, it seems IRS likes to call caregivers employees, but their “tests” lead me to independent contractor. One requires -1099, other requires W2 and tax and social security/ Medicare payments. Accountant leans to employee, family member wants 1099.

Advice? I’m not going to jail in name of family unity!

I think it may be neither... or at least some of it.

Need clarity on what the deal is. FIL lives with a family member and FIL pays the family member for room and board? Is the room and board a fixed amount monthly? Is it a combined amount or is there a number for room and a number for board? How are the amounts paid to the family member for visits to the doctor, etc determined? What is the relationship of FIL to the family member and spouse?

What does it mean when you say "all finances my gig"?

Also, does the family member rent the property so your FIL is just paying his fair share of the rent or does the family member own the property? If the former then I don't see it as income.... people sharing a rental do this all the time.

Without much to go on and assuming that the family member owns the property, I would lean towards... at worst.. the room either a reimbursement or 1099-MISC under rents (box 1.... so Schedule E for the family member), the board being a simple food reimbursement that the parties have agreed to for their mutual convenience (not income so not reported) and perhaps some non-employee compensation for amounts paid to transport and accompany fil to medical visits, etc.

At the same time, if my FIL lives with us and we provide him a room, he eats with us and we take him to Dr appointments out of the goodness of our hearts and then of his own volition he gives us a generous gift at Christmas each year because he appreciates what we do for him... is that income at all? I think not... as long as the gift isn't compulsory. And I'm neither an employee nor an independent contractor.... its just family.

It gets pretty grey pretty quick.

P.S. Assuming that most of the money paid is for room & board then I don't see a W-2 as being appropriate... W-2 is for earnings for services provided as an employee.

 

[Brat]

As Pb4usky said.

An independent contractor must hold themselves out to provide services to others. This circumstance doesn't fit that.

I would separate out each service provided. Room and board as a specific item, usually the same on a daily or monthly basis. Care? Determine based on hours or days.

Is long term care insurance involved? Keep in mind the fact that services provided by a family member do not qualify (been there, done that, now bringing in a home care provider if necessary).

 

[SecondCor521]

IRS link to determine contractor vs. employee:

https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation

 

[Buckeye]

It drives the CPAs bonkers but my approach to any question like this is to interpret the situation to my benefit and count on the fact that an audit is highly unlikely. In the event the IRS comes calling, my speech is: "Gee, I didn't understand it that way. What do I need to do to fix it?"

"For all returns filed for Tax Years 2010 through 2018, the IRS examined 0.60 percent of individual returns ... " https://www.irs.gov/statistics/compliance-presence

Along the same lines, I am pretty sure that the IRA understands cost/benefit calculations. Other than being caught by statistical sampling, why would they try to filch dimes out of old retirees' pockets when there are big fish to fry on their independent contractor griddle?

I would think the IRS would be happy if one side, either side, of the relationship is paying the required taxes. Ultimately, they just want to get their money. Seems like the problem comes when neither side is paying taxes and Uncle is not getting his take!

 

[SecondCor521]

I would think the IRS would be happy if one side, either side, of the relationship is paying the required taxes. Ultimately, they just want to get their money. Seems like the problem comes when neither side is paying taxes and Uncle is not getting his take!

The IRS probably expects people to be classified properly.

Besides the income and FICA taxes being paid, it also affects whether expenses can be deducted and whether certain retirement plans can be used. There may be other things.

 

[anethum]

I'm not a CPA, however, I thought that form 1099-NEC is supposed to replace form 1099-MISC for reporting payments made to contractors in tax year 2020.

 

[pb4uski]

I’m POA/Trustee with FIL, all finances my gig. He lives with family member and spouse. His trust pays family member for “care”, which includes room and board, plus visits to doctor, etc. There is a contract, which calls caregiver independent contractor, responsible for all taxes and fees.

In my research, it seems IRS likes to call caregivers employees, but their “tests” lead me to independent contractor. One requires -1099, other requires W2 and tax and social security/ Medicare payments. Accountant leans to employee, family member wants 1099.

Advice? I’m not going to jail in name of family unity!

Any update? What did you decide to do?