Help around the home can cost you if you consider your caregiver or housekeeper as an independent contractor.
The IRS routinely pursues business owners and entrepreneurs over payroll tax issues. As we have discussed, non-payment of employment taxes has serious repercussions. Common tax dodges around employment taxes include:
- Paying employees cash under the table
- “Leasing” workers from an outsourced vendor
- Misclassifying employees as workers to avoid taxes and benefits such as workers’ compensation coverage
Workers employed as housekeepers, nannies, or caregivers are considered employees. When an employer gives a household worker a 1099 form, it signals the worker is responsible for payment of their employment taxes, among other things. It also signals tax fraud.
Here are some points to keep in mind at tax time if your family employs household help:
- You cannot run the payment of household help through your business. An employee of a family, providing household services, is not contributing the wellbeing of a business to which they are unassociated. Instead, the family must generate a W-2 form for the provider. The family files form W-3 with the Social Security Administration. You must also file form H with your personal income tax return. Schedule H reports household employment taxes on cash or other wages paid to a household provider.
- Check out whether you can use a Dependent Care Flexible Spending Account (FSA) to accrue pre-tax savings in 2021 to help defer taxable income and reduce the cost of child care. Stimulus and tax relief under the American Rescue Plan Act of 2021, enacted on March 11, 2021, can provide you with a Child and Dependent Care Credit. The credit applies to expenses paid for care provided by a qualifying worker as you seek employment or return to work.
- Earlier pandemic relief required paid sick and family leave for household workers under certain circumstances. At present, paid sick and family leave is voluntary. Money you paid for your employee to take sick or other leave during the pandemic could qualify you for a tax credit.
Whether at home or in the workplace, know your employment tax obligations to remain compliant. When you have questions, touch base with an experienced tax attorney to provide trusted guidance before you file your taxes.
Call us when you are contacted about an IRS civil or criminal audit
With offices in Chicago and Cleveland, the tax attorneys at Robert J. Fedor, Esq. LLC delivers aggressive representation for clients throughout the USA and abroad. We offer strategic solutions to tax challenges including criminal tax matters, IRS audits, and payroll tax issues. To learn more or to schedule a free consultation, call 800-579-0997 or contact us.