You are a big proponent of “aging in place,” and so you hired someone to come into your home and help you with daily tasks – bathing, dressing, household chores and a few errands. It may be a close family member, a next- door neighbor or even a stranger who answered an ad. You pay your helper weekly, sometimes cash and sometimes a check, and everyone is happy.
Everyone except the IRS, your CPA, your insurance agent and your lawyer. Why should they care? Because your friendly, simple arrangement is neither friendly nor simple. It is a business arrangement: you hired a person to perform services for pay in your home. Your helper is either your employee or your independent contractor. If your helper falls in your home, then you could get sued and wind up liable for medical or legal costs. Your payments could be reportable to the IRS, and you may end up liable for unpaid taxes. If you eventually file for Medicaid, the payments could be construed as gifts and make you ineligible.
And that is just for starters.
So, do everyone a favor and start the relationship on a business footing. First, determine if your helper will be an employee or an independent contractor. If you control what work is done and how it is done, then the helper is your employee. It doesn’t matter if the work is full-time or part-time, if you hired the worker through an agency, or if you pay on an hourly, daily or weekly basis. The IRS has a helpful form – Publication 926 – called Household Employer’s Tax Guide.
Once you determine you have an employee, then by the first day of work you and your helper have to complete a Form I-9, Employee Eligibility Verification. It is unlawful for you to knowingly hire or continue to employ an alien who cannot legally work in the United States. The form has to be kept available for review upon notice by “an authorized Government official.”
Then you have to deal with employment taxes if you pay the employee more than $2,000 a year, or more than $1,000 in a quarter. These include social security, Medicare, and federal and state unemployment taxes. You will need to get an Employer Identification number. By end of January you must prepare and give your employee Copies B, C and 2 of Form W-2, Wage and Tax Statement. Then by mid-April you need to file a Schedule H.
Or you could subscribe to a payroll service to handle it. Be careful off-loading too much – you have to keep your records for 4 years.
You should consider buying an umbrella liability policy to cover injuries to your helper in the event your homeowners insurance does not provide sufficient coverage.
You should also have a written contract with your helper that spells out hours, tasks and pay. The caregiver should keep a log of hours.
Put it together right the first time – and life will be much easier.
Hammerle Finley Law Firm. Give us a call. We can help.
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The information contained in this article is general information only and does not constitute legal advice.