“Nanny Tax” Issues
Posted Saturday, December 21, 2013 by John S. Palmer
Starting January 1, the threshold for withholding payroll taxes from wages paid to in-home caregivers and other domestic help will increase to $1,900, an increase of $100 from 2013. No taxes need be withheld if the total wages paid for the year to a household employee do not exceed that amount.
Arranging and paying for in-home help and personal care is an issue that many elder law attorneys deal with on a regular basis. There has been a sharp increase in the number of non-medical, in-home care providers in recent years that typically charge $25 per hour or more, but screen their caregivers and take care of payroll taxes.
For those who choose to employ in-home caregivers directly, there is a temptation to avoid the hassle of handling payroll taxes (and having to pay the employer’s half of the taxes, equal to 7.65% of wages paid) by treating domestic help as independent contractors. However, the IRS has established factors for determining when a worker must be treated as an employee; the IRS website states that the general rule is that “an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done” whereas “anyone who performs services for you is your employee if you can control what will be done and how it will be done.” Most in-home caregivers fit into the employee category, as they generally take pretty specific direction from the person employing them.
In any event, treating an in-home caregiver as an employee offers at least one distinct advantage; employees can be insured by the workers’ compensation program, which generally protects employers from being sued for negligence if an employee is injured on the job; there is no such protection when hiring an independent contractor. This can be important if the in-home caregiver is doing anything potentially strenuous such as when the person being cared for has mobility issues and needs to be lifted when transferring from a bed or chair.
For those facing the need for such in-home care, an experienced elder law attorney can provide advice about these issues, as well as help in determining whether government benefits are available to help pay for care, such as through VA Aid & Attendance benefits and/or Washington State’s COPES program.
If you have any questions or would like to schedule an appointment, please call us at (425) 455-5513, toll free at (877) 455-5513, or info@palmerlegal.com.