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If the caregiver works for an agency, then the agency submits the 1099 to their contract labor or a W-2 for employees.
If you or your parent pay for a caregiver directly, then they should be considered contract labor & any money paid over $600 per year should have a 1099 issued by January 31 of the following year.$600 is the threshold for 1099's, under $600, no 1099. Just in case, you should look at the IRS guidelines for contract labor vs. employee. Contract labor is kinda easier to deal with.
So if in 2012 you paid Sally, the retired nurse neighbor, $8,000 for caregiving for your mom, then Sally should get a 1099 for 8K from you and it should have been mailed to Sally by 1/31/13. Sally is responsible for reporting this as income on her taxes and paying whatever tax liability she has because of it.
What you need to provide to Sally is a W-9 - Request for Taxpayer ID #. There is also another form, the I-9, that gets used to vett citizenship for Homeland Security for any contact labor or employees hired in the US. You can go on-line to download & print these. You give them to Sally, she fills them out and you keep both in your tax file somewhere.
For my mom, when she was still living @ home, the caregivers were with an agency so nothing had to be done by myself or my mom. I have a business and use contract labor on projects, they have to do the W-9 and I-9 and submit it to me before they will get paid. No excuses either. Then they get a 1099 in January for all money paid to them, fees, expenses, whatever as 1 sum. It's up to them to report it as income and figure out their expenses or deductions to do their taxes and pay the tax liability on that income. I've done my part required by the feds and the contract labor is a business expense deduction. I am not responsible for paying any of their tax liability.
One problem is those folks who want to be paid under-the-table for whatever reason. that's a decision only you can make as to whether to do it or not. But keep in mind, that if mom does this for years and years and the amounts add up, IF she applies for Medicaid, you may have to provide documentation that the amounts paid to Sally were for caregiving so that it isn't viewed as gifting. So you need to keep records. Good luck.
Here's the IRS form that helps you determine whether not the worker is a household employee and what you need to if they are. Because you control the schedule, set the duties, and provide any supplies your homecare worker needs, they are considered a household employee rather than an independent contractor. If anything in this publication doesn't make sense, you should talk with a tax expert. Sometimes senior centers have tax preparers who come in during tax season to help seniors file their taxes, so you may want to contact your local senior center. Good luck!
You weren't asked to sign an agreement to act as proxy when the POA was executed? (I signed an acknowledgment agreeing to act).
So you have no access to her funds, and no authority to pay bills. How do you feel about being involved in this whole situation?
Bluntly, I can't help thinking that you're being positioned to play the "patsy" when one is needed. Your neighbor didn't ask you if you wanted this responsibility, you have no access to her funds, you're trying to do the right thing by working with her accountant yet are being challenged.
Is there anything positive about this arrangement that would encourage you to continue in it?
The situation between the health care proxy and the caregivers is unsettling. I would stay out of this, as I suspect when things go wrong and the IRS becomes involved, the blame will be shoved off on you.
If this were me, I'd summarize the reasons why this relationship is untenable:
1. You weren't consulted or asked if you were willing to be financial proxy.
2. You have no access to funds anyway.
3. Your recommendations based on conferences with her CPA are being ignored.
4. You have concerns whether the payroll issues are being handled properly.
5. You really have no role except be available for blame.
6. Therefore, you see no justification to remain involved on any level and tender your resignation, effective immediately. And don't even discuss these issues with the friend or caregivers after that.
Just to be on the safe side, before you do this, review all of the issues with which you disagree, and itemize them more than I have. Be thorough so the resignation encompasses all possibilities.
Have someone at yours or her bank notarize and witness your signature and send it to the neighbor by certified mail, return receipt requested.
And obviously keep a copy of it, as well as all the documentation you've done, so that basically you absolve yourself of responsibility for actions over which you have no control.
I would also provide a copy of your executed resignation to her bank, accountant and any other institutions with whom you've interacted.
If she begins making accusations, cut all contact with her.
I see this as a mess right now, with the possibility of becoming more of a mess as well with implications of improper authorization of funds, misuse of funds, and possible elder abuse, as it seems as this woman is losing some of her ability to manage her own finances. I would want to be as distant from this situation as I could when someone makes an accusation, and you can guess who will be blamed. Don't let them make you a martyr.
Oooops Igloo! You are soooo NOT correct, sorry. I know a 1099 is simpler, but it ain't legal unless the person properly falls in the category of a business. 1099's are misused by many and could prove a VERY costly mistake.
Caregiver payments fall under the category of Household and are considered wages subjet to social security & medicare withholding (Form W-2). Schedule H can be used to report the wages (by itself or attached with your Form 1040 tax return). Publication 926 can provide useful information about reporting and withholding requirements. Form SS-4 is an application for a federal EIN (employee identification number) which will be needed to file Schedule H; Form W-4 is completed by the employee to provide you with their SS# and address information; Form I-9 is a verification form that may be needed to determine if the employee is a US citizen or eligible to legally work in the United States. Check with your State to determine their filing requirements for State taxes and unemployment (SUTA).
If you have contracted with an agency or other 3rd party agent for a caregiver, they are generally responsible for the withholding on the individual(s) they provided for you and you can issue the agency a 1099 for the payments you made directly to them.
Additionally, there could be other tax considerations, particularly involving deductibility of these types of expenses, and it would be advisable to discuss them with a tax professional.
Sorry, busy with tax season and didn't get back here earlier.
Igloo, again, sorry, but I believe you really need further advice. I'm concerned because others may rely on what you have written. The substance of an issue cannot be ignored -i.e. employee or non-employee. If you previously issued 1099's with no problems, well, maybe it was correct for your situation or then again, Not Every One Gets Caught. If an issue should come up due to a mistake, it can be quite expensive. Ignorance of the law is not a defense.
I'm not sure what you believe the inc (corporation) and LLC (a State function, not a federal entity) have to do with contract labor vs employee because I can assure you the entity type (vehicle) does not make a difference. As for a Trust, Schedule H (Form 1040) is also used to report household wages with Form 1041 (Trust). See the Schedule G part of your trust tax return Form 1041.
All I'm saying is that people should discuss their individual situation with someone who has adequate information to properly advise them whether payments should be considered W-2 wages or if a 1099 is appropriate. After many years of accounting practice I can safely advise that it is easier and cheaper to report payments to individuals according to the regs -this is not a gray area. It's also not that difficult or expensive to report wages correctly.
Companion/sitter -Can be considered as Statutory Non-employee and get a 1099-Misc (Box 7) IF the services are performed under a written contract providing that they will NOT be treated as employees for federal tax purposes and (I think) the payments should not be tied to the number of hours worked, but more of a fee basis.
Caregivers are specifically listed as employees for employment tax reporting purposes and are required to be issued a W-2. They are considered Statutory employees -which includes someone who works in your home. (Common law employees are those who work for a business). Reporting for caregivers is usually done with Schedule H (household) -business employers can use Form 941. IRS Publication 926 can provide more information about this. Social security & medicare taxes are withheld from wages. Those are paid to the IRS with a matching amount paid by the employer. Federal income taxes are not withheld unless requested by the employee AND the employer agrees to do it.
1099-Misc., Box 7 compensation is NOT 'Wages' or 'Other Income'. Box 7 compensation is reported on Schedule C and Form SE is used to calculate Social Security and Medicare tax liability which will be added to the total tax due on the individual's Form 1040. One-half of the SE (self-employment) tax can be deducted from gross income in the 'Adjustments....' section (at the bottom of page 1 of Form 1040).
Since IRS has added the category Companions/Sitters to the Statutory Non-employees, if the person providing the service understands they will have to pay all of their own Social security & medicare taxes and will sign the contract stating they are not employees, give them the 1099. If not, you will have to go with the Sched H.
As for 'family', I think I'd look first at considering the 'gift' amount (no gift tax return required) of $14,000 (28,000 if spouse included) before doing anything else -unless there is a tax purpose for recognizing the wage expense. There is one other ticky thing regarding 'family caregivers', but I haven't figured it out myself yet so I'll not mention it here until I get some more information.
Barb - really look at the IRS site for employee vs. contract labor. If they meet the criteria for contact labor, that is much easier route to go. If they are really truly employees, then you have to deal with withholding and a host of other employer issues which could be alot to deal with.
My advice is to follow what Claire says. My advice is based my my 20+ years in IRS tax collection, including a year of auditing payroll tax returns and determining who was an employee and who was not.
Yes, you need to file state and federal tax returns to report your income. I assume you got your full pay with no deductions for Social Security or income taxes. So, you should have realized that this was not right if you thought you were an employee. If you are not an employee you are an independent contractor responsible for having to pay your own SS and income tax. Go to one of the big name tax preparation companies to do your return. Talk to the people who pay you and get this important issue cleared up. You want to be covered for your own future so you will get SS when your time comes.
By proceeding, I agree that I understand the following disclosures:
I. How We Work in Washington.
Based on your preferences, we provide you with information about one or more of our contracted senior living providers ("Participating Communities") and provide your Senior Living Care Information to Participating Communities. The Participating Communities may contact you directly regarding their services.
APFM does not endorse or recommend any provider. It is your sole responsibility to select the appropriate care for yourself or your loved one. We work with both you and the Participating Communities in your search. We do not permit our Advisors to have an ownership interest in Participating Communities.
II. How We Are Paid.
We do not charge you any fee – we are paid by the Participating Communities. Some Participating Communities pay us a percentage of the first month's standard rate for the rent and care services you select. We invoice these fees after the senior moves in.
III. When We Tour.
APFM tours certain Participating Communities in Washington (typically more in metropolitan areas than in rural areas.) During the 12 month period prior to December 31, 2017, we toured 86.2% of Participating Communities with capacity for 20 or more residents.
IV. No Obligation or Commitment.
You have no obligation to use or to continue to use our services. Because you pay no fee to us, you will never need to ask for a refund.
V. Complaints.
Please contact our Family Feedback Line at (866) 584-7340 or ConsumerFeedback@aplaceformom.com to report any complaint. Consumers have many avenues to address a dispute with any referral service company, including the right to file a complaint with the Attorney General's office at: Consumer Protection Division, 800 5th Avenue, Ste. 2000, Seattle, 98104 or 800-551-4636.
VI. No Waiver of Your Rights.
APFM does not (and may not) require or even ask consumers seeking senior housing or care services in Washington State to sign waivers of liability for losses of personal property or injury or to sign waivers of any rights established under law.
I agree that:
A.
I authorize A Place For Mom ("APFM") to collect certain personal and contact detail information, as well as relevant health care information about me or from me about the senior family member or relative I am assisting ("Senior Living Care Information").
B.
APFM may provide information to me electronically. My electronic signature on agreements and documents has the same effect as if I signed them in ink.
C.
APFM may send all communications to me electronically via e-mail or by access to an APFM web site.
D.
If I want a paper copy, I can print a copy of the Disclosures or download the Disclosures for my records.
E.
This E-Sign Acknowledgement and Authorization applies to these Disclosures and all future Disclosures related to APFM's services, unless I revoke my authorization. You may revoke this authorization in writing at any time (except where we have already disclosed information before receiving your revocation.) This authorization will expire after one year.
F.
You consent to APFM's reaching out to you using a phone system than can auto-dial numbers (we miss rotary phones, too!), but this consent is not required to use our service.
If you or your parent pay for a caregiver directly, then they should be considered contract labor & any money paid over $600 per year should have a 1099 issued by January 31 of the following year.$600 is the threshold for 1099's, under $600, no 1099. Just in case, you should look at the IRS guidelines for contract labor vs. employee. Contract labor is kinda easier to deal with.
So if in 2012 you paid Sally, the retired nurse neighbor, $8,000 for caregiving for your mom, then Sally should get a 1099 for 8K from you and it should have been mailed to Sally by 1/31/13. Sally is responsible for reporting this as income on her taxes and paying whatever tax liability she has because of it.
What you need to provide to Sally is a W-9 - Request for Taxpayer ID #. There is also another form, the I-9, that gets used to vett citizenship for Homeland Security
for any contact labor or employees hired in the US. You can go on-line to download & print these. You give them to Sally, she fills them out and you keep both in your tax file somewhere.
For my mom, when she was still living @ home, the caregivers were with an agency so nothing had to be done by myself or my mom. I have a business and use contract labor on projects, they have to do the W-9 and I-9 and submit it to me before they will get paid. No excuses either. Then they get a 1099 in January for all money paid to them, fees, expenses, whatever as 1 sum. It's up to them to report it as income and figure out their expenses or deductions to do their taxes and pay the tax liability on that income. I've done my part required by the feds and the contract labor is a business expense deduction. I am not responsible for paying any of their tax liability.
One problem is those folks who want to be paid under-the-table for whatever reason. that's a decision only you can make as to whether to do it or not. But keep in mind, that if mom does this for years and years and the amounts add up, IF she applies for Medicaid, you may have to provide documentation that the amounts paid to Sally were for caregiving so that it isn't viewed as gifting. So you need to keep records. Good luck.
IRS Form 926, Household Employer's Tax Guide: http://www.irs.gov/pub/irs-pdf/p926.pdf
So you have no access to her funds, and no authority to pay bills. How do you feel about being involved in this whole situation?
Bluntly, I can't help thinking that you're being positioned to play the "patsy" when one is needed. Your neighbor didn't ask you if you wanted this responsibility, you have no access to her funds, you're trying to do the right thing by working with her accountant yet are being challenged.
Is there anything positive about this arrangement that would encourage you to continue in it?
The situation between the health care proxy and the caregivers is unsettling. I would stay out of this, as I suspect when things go wrong and the IRS becomes involved, the blame will be shoved off on you.
If this were me, I'd summarize the reasons why this relationship is untenable:
1. You weren't consulted or asked if you were willing to be financial proxy.
2. You have no access to funds anyway.
3. Your recommendations based on conferences with her CPA are being ignored.
4. You have concerns whether the payroll issues are being handled properly.
5. You really have no role except be available for blame.
6. Therefore, you see no justification to remain involved on any level and tender your resignation, effective immediately. And don't even discuss these issues with the friend or caregivers after that.
Just to be on the safe side, before you do this, review all of the issues with which you disagree, and itemize them more than I have. Be thorough so the resignation encompasses all possibilities.
Have someone at yours or her bank notarize and witness your signature and send it to the neighbor by certified mail, return receipt requested.
And obviously keep a copy of it, as well as all the documentation you've done, so that basically you absolve yourself of responsibility for actions over which you have no control.
I would also provide a copy of your executed resignation to her bank, accountant and any other institutions with whom you've interacted.
If she begins making accusations, cut all contact with her.
I see this as a mess right now, with the possibility of becoming more of a mess as well with implications of improper authorization of funds, misuse of funds, and possible elder abuse, as it seems as this woman is losing some of her ability to manage her own finances. I would want to be as distant from this situation as I could when someone makes an accusation, and you can guess who will be blamed. Don't let them make you a martyr.
Caregiver payments fall under the category of Household and are considered wages subjet to social security & medicare withholding (Form W-2). Schedule H can be used to report the wages (by itself or attached with your Form 1040 tax return). Publication 926 can provide useful information about reporting and withholding requirements. Form SS-4 is an application for a federal EIN (employee identification number) which will be needed to file Schedule H; Form W-4 is completed by the employee to provide you with their SS# and address information; Form I-9 is a verification form that may be needed to determine if the employee is a US citizen or eligible to legally work in the United States. Check with your State to determine their filing requirements for State taxes and unemployment (SUTA).
If you have contracted with an agency or other 3rd party agent for a caregiver, they are generally responsible for the withholding on the individual(s) they provided for you and you can issue the agency a 1099 for the payments you made directly to them.
Additionally, there could be other tax considerations, particularly involving deductibility of these types of expenses, and it would be advisable to discuss them with a tax professional.
f-y-i, I am a CPA.
Igloo, again, sorry, but I believe you really need further advice. I'm concerned because others may rely on what you have written. The substance of an issue cannot be ignored -i.e. employee or non-employee. If you previously issued 1099's with no problems, well, maybe it was correct for your situation or then again, Not Every One Gets Caught. If an issue should come up due to a mistake, it can be quite expensive. Ignorance of the law is not a defense.
I'm not sure what you believe the inc (corporation) and LLC (a State function, not a federal entity) have to do with contract labor vs employee because I can assure you the entity type (vehicle) does not make a difference. As for a Trust, Schedule H (Form 1040) is also used to report household wages with Form 1041 (Trust). See the Schedule G part of your trust tax return Form 1041.
All I'm saying is that people should discuss their individual situation with someone who has adequate information to properly advise them whether payments should be considered W-2 wages or if a 1099 is appropriate. After many years of accounting practice I can safely advise that it is easier and cheaper to report payments to individuals according to the regs -this is not a gray area. It's also not that difficult or expensive to report wages correctly.
Companion/sitter -Can be considered as Statutory Non-employee and get a 1099-Misc (Box 7) IF the services are performed under a written contract providing that they will NOT be treated as employees for federal tax purposes and (I think) the payments should not be tied to the number of hours worked, but more of a fee basis.
Caregivers are specifically listed as employees for employment tax reporting purposes and are required to be issued a W-2. They are considered Statutory employees -which includes someone who works in your home. (Common law employees are those who work for a business). Reporting for caregivers is usually done with Schedule H (household) -business employers can use Form 941. IRS Publication 926 can provide more information about this. Social security & medicare taxes are withheld from wages. Those are paid to the IRS with a matching amount paid by the employer. Federal income taxes are not withheld unless requested by the employee AND the employer agrees to do it.
1099-Misc., Box 7 compensation is NOT 'Wages' or 'Other Income'. Box 7 compensation is reported on Schedule C and Form SE is used to calculate Social Security and Medicare tax liability which will be added to the total tax due on the individual's Form 1040. One-half of the SE (self-employment) tax can be deducted from gross income in the 'Adjustments....' section (at the bottom of page 1 of Form 1040).
Since IRS has added the category Companions/Sitters to the Statutory Non-employees, if the person providing the service understands they will have to pay all of their own Social security & medicare taxes and will sign the contract stating they are not employees, give them the 1099. If not, you will have to go with the Sched H.
As for 'family', I think I'd look first at considering the 'gift' amount (no gift tax return required) of $14,000 (28,000 if spouse included) before doing anything else -unless there is a tax purpose for recognizing the wage expense. There is one other ticky thing regarding 'family caregivers', but I haven't figured it out myself yet so I'll not mention it here until I get some more information.
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