New Tax Implications for Household Employers · – Saves average family $2,000-$2,300 per year, depending upon marginal tax rate • Child or Dependent Care Tax Credit (Form 2441)

New Tax Implications for Household Employers

Helping Families With Domestic Employees Mitigate Risk and Save Money

Presented by

Tom Breedlove

Director

Care.com HomePay

Provided by Breedlove

Introduction

Several major forces are conspiring to make household employment compliance a more important issue this tax season than it’s ever been before:

• Domestic Worker Bill of Rights Legislation

• Affordable Care Act Premium Assistance for Individuals

• DOL Guidance on Worker Classification

• Repeal of the “Companion Care Exemption”

Household Employment Basics


Who Is a Household Employer?

If a family employs an individual to perform duties in or around their home and has the right to control when, where, how or by whom the work should be performed.

• Nannies• Senior Caregivers• Housekeepers• Private Nurses• Personal Assistants• Chefs• Estate Managers


The “Nanny Tax” Obligations* (IRS Publication 926)

1. Withhold payroll taxes (Social Security, Medicare and all applicable state taxes) from the employee’s pay

2. Pay employer taxes (Social Security, Medicare and unemployment taxes)Good News! Tax breaks can offset a large portion of the employer tax cost

3. File state and federal tax returns and remit employer and employee taxes throughout the year

4. At year end, provide employee with Form W-2, file Form W-2 Copy A/Form W-3 with the Social Security Administration and file Schedule H with their federal personal income tax return

*If pay any individual $2,000 or more in a calendar year (2015 threshold is $1,900)


The Labor Law Obligations (Fair Labor Standards Act & State Law)

Household employers may have several major employment law responsibilities:

• Provide written Wage Notice or Employment Agreement• Provide detailed pay stubs• Minimum Wage• Overtime • Mileage/Expense reimbursement• Workers’ Compensation insurance• Disability Insurance• Paid Time Off/Paid Sick Leave

Helping Clients Avoid Tax & Legal Risk

Avoiding Common Mistakes & Issues

Worker Misclassification

• IRS has consistently ruled that domestic workers should be classified as “employees” rather than independent contractors The right to control what, when, where or by whom the work is performed

• New DOL factors narrow IC status “Permanence” and “Economic Dependence”

• DOL and IRS have teamed up to increase enforcement; household employment industry cited as key target


Procrastination

• Families think this is “tax stuff” so it can be handled at “tax time”– Failed to withhold taxes properly– Failed to file employment tax returns timely– Failed to handle Overtime properly

• Much less costly and easier to handle correctly at time of hire

• Leverage our family-friendly “Employment Packet”– Employment Contract Template– Tax Withholding Forms– Form I-9– Invitation for a free phone consultation


Putting a Domestic Worker on the Company Payroll

• The IRS does not allow a personal, domestic employee to be paid through business payroll

• Tax deductions on business payroll require all employees to be “direct contributors to the success of the business.”

The IRS has ruled that domestic employees do not qualify as direct contributors

Therefore, including them on business filings is considered an illegal tax deduction

• Legally, it’s wise to keep separate for asset protection reasons


Overtime

• Federal law says all “Non-Exempt” workers (protected class) must be paid time-and-a-half for all hours over 40 in a 7-day work week. – “Fixed Salaries” are illegal

• Federal law exempts Live-In employees from Overtime requirements– BUT some states have their own OT requirements for live-in employees


Overtime

• Federal 24-Hour Shift Law Up to 8 hours of sleep time may be treated as non-compensable hours if:

Adequate sleeping facilities are provided

Continuous sleep is possible, and

The Employee agrees to it in writing

• Repeal of Companion Care Exemption

All third-party care workers entitled to overtime

Privately-employed care workers don’t have to be paid overtime as long as they meet the new, more narrow definition of “companion”


Workers’ Compensation Insurance

• Workers’ comp is not part of the tax system; it’s a private insurance policy that helps with medical expenses and lost wages in the event of work-related injury or illness

• It is required for business employers in virtually every state, but household employers are exempt in about 20 states

• However, even if not required, families can be held liable

• Usually, WC can be easily obtained through homeowner’s insurance agent. If not, we can help with a stand-alone policy

• Workers who accept benefits forfeit right to sue employer

Helping Clients Save Money


Dependent Care Tax Breaks (IRS Publication 503)

• Flexible Spending Account

– $5,000 cap per family per year

– Saves average family $2,000-$2,300 per year, depending upon marginal tax rate

• Child or Dependent Care Tax Credit (Form 2441)

Itemize up to $3,000 per child per year ($6,000 maximum)

Most families will see 20% tax credit

Saves $600 or $1,200

Note: Families with 2 or more children can take both tax breaks


Non-Taxable Compensation

• Health Insurance (if 1 employee or purchased through SHOP)

• College Tuition (up to $5,250 per year)

• Cell Phone Service

• Public Transportation (up to $130 per month)

• Parking (up to $255 per month)


Health Insurance Tax Credit for Small Employers

• Credit of up to 50% of employer HI contribution, if:

Employer contributes at least 50% of premium

Employer has fewer than 25 employees

Employees’ average annual wages are less than $50,000

Policy purchased through Small Business Health Options Program (SHOP)

Compliance Is Right Thing – and Smart Thing – To Do

Reduced Legal & Audit Risk

Insurance against expensive fines and lawsuits from disgruntled employees

Dependent Care Tax Breaks

Can offset most – if not all – of the employer tax costs

Employee Benefits & Protections

• Payroll taxes fund Social Security, Medicare, Unemployment, and Disability benefits• Payroll history required for loans/credit and health insurance subsidies

Resources

Free Employment “Getting Started” Packet

Free Calculators

• Employer Budget Calculator• Employee Paycheck Calculator

Online Library at myHomePay.com

• State-Specific Requirements• Helpful Tips & FAQs

Household, Employer, Tax, & HR Experts

About Care.com HomePay℠

A No-Work, No-Worry Solutionto Household Employment Since 1992

• Accountable for all aspects of household employment payroll, tax and HR

• Serve all 50 states with guaranteed accuracy & timeliness

• All payroll and tax documents archived online for easy 24/7 accessfor Authorized Contacts (Accountant/Advisor or Family members)

Questions

888-273-3356 [email protected] www.myHomePay.com

Contact Info

Tom Breedlove, [email protected]

(888) 273-3356

Brian Glennon, Partner Relations SpecialistBrian [email protected]

(888) 273-3356

Documents

New Tax Implications for Household Employers · – Saves average family $2,000-$2,300 per year, depending upon marginal tax rate • Child or Dependent Care Tax Credit (Form 2441)