How do I file for taxes for my privately hired health aide?
Please list step by step the items, papers, etc. that I have to file for taxes for my health aide who is hired privately; is a retiree, and is a godsend...She comes in twice a week for 3 hours and I have to pay her by check so that I get reimbursed by my insurance co. Everyone seems to have a different solution.I don't want to be audited!
The first question you need to answer is "who is controlling the work?" If you control how the work is done, your health aide is an employee and you are responsible for employment and unemployment taxes. If she controls how the work is done, she is self-employed and it is her responsibility to pay taxes, not yours. If she is your employee, you must make sure she is eligible to work in the US. You and she must complete the US Citizenship and Immigrant Services' (USCIS) I-9 form, which can be found online. If you will be paying her more than $1,700 in 2011, you need to withhold and pay social security and Medicare taxes, along with federal unemployment tax. You are not required to withhold federal income tax, but if the employee requests it, you can do so. The total amount of taxes to withhold for social security and Medicare is 13.3% of the cash wages you pay. Your share is 7.65% (6.2% for social security and 1.45% for Medicare). Your employee's share is 5.65% (4.2% for social security and 1.45% for Medicare). You can pay the employee's share yourself and not withhold it from her wages. As of 7/1/2011, employers pay 0.6% of cash wages for FUTA (federal unemployment tax act). This tax applies to the first $7,000 of cash wages only. Above $7,000, there is no tax. You can refer to IRS Publication 926 for the specifics of these rules, as well as where to send payments. Depending on which state you live in, there may be state unemployment tax, state employment tax or you may be required to carry workers' compensation insurance. Check with your state government to learn about your responsibilities.
Dear Barbara, Thank you for the response. It seems like a lot of taxes and paperwork . Who is controlling the work? My aide insists she is an independent contractor.; she has a set routine of what she does for her patient(showering, shaving, dressing, lunch, laundry). I am not present for the most part as I use this time for marketing. Who is controlling the work? What tax is the most important one to file if I should at least make an attempt to report the income?.
From what you wrote, I would say that she is controlling the work. To make you feel more comfortable, write up an agreement stating that she is an independent contractor who controls how she does her work. Put that she is responsible for paying self-employment taxes. She is not your employee. Both of you should sign it.
You can't stick your toe in the water. You either stay out or dive in. Paying some of the taxes won't work. She either is your employee or is not.
I strongly recommend that you actually sit down with a local legal and/or tax pro to learn how best to deal with the issues you have, both those concerns that are real and that might otherwise be imaginable.
One idea some of my own tax clients avail themselves of is to avoid the IRS Form 1040 based Household Employee system and instead hire your aide through a professional employee leasing organization. In that way the aide is lawfully covered under FICA, Medicare, unemployment and workmen's compensation regulations, and the employee leasing company handles the paperwork for you (for a fee of course).
There are inherent dangers these days over hiring of "subcontracted" un-incorporated individuals or firms, not the least of which are not only about tax matters, but also about liability matters in case the worker is somehow injured on the premises or because of the work being performed (back injuries, etc.).
Look up the tax implications at www.irs.gov and search "household employees" or, as I mentioned earlier, simply sit down with your local tax professional and/or legal counsel and make on signed, witnessed and perhaps even notarized the very necessary contractual work terms in writing between the parties.
Yours is a growing concern as the "baby boomers (born from 1946 through 1964)" step in the social security/medicare environment and find themselves exposed to unexpected liabilities when hiring an aide, housekeeper, medical practitioner, etc. to work for you and in your behalf inside your personal residence. Make certain also with your insurance agent whether or not your homeowners' policy covers you if or when such an aide might be injured on the premises or as the direct result of providing those services that result in injury to the aide.
I hope this information is of some use to you. You might care to first make contact with a federally-licensed Enrolled Agent who specializes in dealing with household employees. Search the website www.naea.org to find such a list of federally-licensed individuals.
Thomas Avery Blair, Enrolled Agent
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