The short answer is yes, caregivers do pay taxes. But a better question is often what kind of taxes need to be paid and who’s responsible for withholding and reporting these payroll taxes. If you’ve hired a home health agency, then more than likely, the agency itself is the employer and the applicable employee taxes are part of the labor costs absorbed by the agency itself. If you’re hiring a private duty nurse or other independent caregivers, then you may be responsible for withholding and reporting taxes to the IRS, just like other employers. Just like other employer-employee relationships, it’s customary to split the applicable FICA taxes (15.3 percent, or 7.65 percent per payer/payee).
Now, there are some basic thresholds that have to be met. If you fail to pay the person at $2,000 in the calendar year, you can get around filing and paying employee taxes. Likewise, there are some exceptions for minors and family members, but even these are far from absolute. Thus, maybe what you’re really trying to ask: Do caregivers pay taxes in your particular set of circumstances? For most people, the best way we’ve found to answer this question is by referencing IRS topic 756
on employment taxes for household employees.
What Happens when Caregivers Don’t Pay Taxes?
It can be tempting to try to pay your caregiver under the table, but it’s not worth the risk. Not only may you face stiff fines and penalties, but you may also be denying your employee important benefits down the road. This can also be a key part of the conversation if your caregiver is giving you gruff about reporting their income and paying taxes. You don’t want to leave the caregiver with a huge income tax bill at the end of the year. Either have the employee fill out a w-4 and start withholding these taxes on behalf of the employee—or else inform them of their approximate income tax liability. Check out this warning, too, about trying to pay a caregiver off the books.
That said, you may hear stories about other households who don’t make their caregivers pay taxes. More so than other professions, it’s not uncommon for the household employer to cover both the employer and employee portions of the payroll taxes. This, too, can be part of the conversation about home health care wages. Some people prefer to bottom-line the employee’s take-home pay. But keep in mind that you may also be to hire a more experienced, skilled caregiver by offering employee perks like paid time off, free meals, transportation, or even health/retirement benefits.
AMS Payroll Software for Processing Home Health Care Wages
As an employer, calculating and reporting home health care wages is easy with our software solution. With our Forms Filer platform and Payroll module, you can easily create a Payee file and prepare your W-2 and basic employee forms. With our Forms Filer Plus module, you’ll also have the support you need for filing Sch H Form 1040 as well as any number of state-based employment forms. Add in our Payroll module and you’ll be to set up and automatically calculate paychecks, while transferring this payroll data to your quarterly and end-of-year filing forms. Our intuitive interface is perfect for both small businesses and household employers alike. Don’t hesitate to buy our accounting software online. You can also get started by downloading our free demo or by calling (800) 536-1099.