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Tuesday Tax Tip for Household Employers

by breedlove September 11, 2012

Since we became household employers and started Breedlove & Associates back in 1992, the question of worker classification has come up almost every single day in one form or another -- Is she my employee or an independent contractor?  Can't I just give her a Form 1099 at year end?  If she agrees to be an independent contractor, is it legal? 

 

Unfortunately, a lot of the answers floating around on parent forums and other websites are flat out wrong -- and lead families into expensive mistakes.  We feel like it's our job to share the correct information so families don't get blindsided by legal problems.  So, here's what you need to know.

 

The IRS has a 20-point test to determine worker classification.  In virtually all cases, the IRS has ruled that domestic workers (i.e. nannies, housekeepers, senior caregivers, personal assistants, chefs, estate managers, etc.) are employees of the families for whom they work.  It doesn't matter what the contract says or what the worker calls herself, the family is legally considered the employer and, therefore, they are subject to household labor laws and the "nanny tax" obligations.

 

Why does the IRS care?  It's all about tax dollars and funding the programs that provide worker benefits and protections.  Employers are required to match the employee's Social Security and Medicare taxes as well as pitch in to the state and federal unemployment pools that fund unemployment benefits.  Without these contributions, workers find themselves without retirement income, health insurance during retirement or temporary income in the event of a layoff.

 

For these reasons, the IRS and the Department of Labor have teamed up recently to begin an unprecedented effort to crack down on worker misclassification.  It's simply not worth the tax evasion charges -- and corresponding fines, back taxes and interest.

 

If you have any questions about worker classsification, please don't hesitate to give us a call.  We're here to help.

IRS, DOL and States Work Together to Reduce Worker Misclassification

by Breedlove November 16, 2011

The Internal Revenue Service (IRS) and the Department of Labor (DOL) recently announced a partnership designed to crack down on worker misclassification -- that is, treating workers as independent contractors when they should be treated as employees.  A number of states have joined the enhanced enforcement initiative and others are expected to follow.

 

The reason?  Money.  Misclassification costs federal and state tax agencies billions of dollars each year in lost tax revenue.

 

While worker classification can be somewhat ambiguous in some industries, the IRS has ruled definitively on the household employment industry.  Nannies, housekeepers, health aides, personal assistants, estate managers and other domestic workers are all considered employees -- regardless of what they're called in a contract, how much they're paid, or how many hours a week they work.

 

Misclassifying these employees as independent contractors is considered tax evasion and includes back taxes, penalties and interest.  If you've had a household employee and been illegally giving her a Form 1099, now's the time to re-classify her as an employee and give her a Form W-2.  If you're worried about the cost or the paperwork, don't be; tax breaks make it much cheaper than you think and our service makes it effortless.  For more info, click here to take our brief video tour.




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