What are my tax obligations as a household employer?
When you hire a caregiver or other household employee, both you, as the employer, and your caregiver will have some tax obligations. If a family pays a household employee $1,800 (2012) or more in a calendar year, they are required to meet the household employer tax obligations. As an employer you can expect to pay approximately 9-11% of your employee's wages in employer payroll taxes.
Please note however, as the employer of the caregiver, you will be responsible for remitting both your share (employer) and the caregivers' share (employee) of taxes on a quarterly basis. Our tax experts will help prepare everything for you. Caregiver (employee) taxes are approximately 7-9% of total wages paid to the caregiver. You and your caregiver can decide on who will cover the caregivers share of taxes when you agree upon the final pay rate. If you agree that the caregiver will help contribute to their share of taxes, then simply lower the final agreed upon pay rate by 7-9%.
We keep track of all this for you so you don't have to, but for your information the specific taxes and rates are detailed below.
- The employer's half of Medicare & Social Security ("FICA"). The rate is 7.65% of employee's wages.
If I use CareLinx, am I a household employer?
Yes. CareLinx is not a traditional agency so the caregivers listed on our site are not our employees. In order to be fully compliant, we facilitate the relationship between you and your caregiver as a household employer and employee. Many people are intimidated by the
tax obligations of hiring a private caregiver and settle for paying expensive hourly rates at an agency. CareLinx's 100% compliant solution brings you both simplicity and affordability as a household employer.
Why isn't my caregiver an Independent Contractor?
One of the most common mistakes and misconceptions is to classify household employees as Independent Contractors and give them a Form 1099. The IRS has ruled that household workers are employees of the family for whom they work; attempting to classify them as an independent contractor by giving them a Form 1099 is considered tax evasion and does not absolve them of their household employer tax and legal obligations
What tax breaks are available for in-home care expenses?
Taking advantage of certain tax breaks can offset most, if not all, of your employer tax obligations. There are two tax breaks that are available to tax compliant household employers:
Dependent Care Account (commonly called a Flexible Spending Account)
Most companies allow employees to contribute up to $5,000 of their pre-tax earnings to a Dependent Care Account to help pay for childcare, senior care, or other dependent care expenses. This means there is no federal income tax, state income tax or FICA taxes on that $5,000 of your income. Depending on your tax bracket, this deduction will save you about $2,100-$2,300 per year which will offset – sometimes exceed – your employer tax liability. Check with your company’s HR department or Accounting department to learn about your enrollment options. Once set up, we can provide you with the paperwork you'll need to take advantage of this tax break.
If you don’t have access to a Dependent Care Account, you can claim the Tax Credit for Child or Dependent Care on your personal federal income tax return at year end. This tax credit saves $600 for families with one dependent or $1,200 for families with two or more dependents.
Child Care Tax Credit.
Feel free to call us to learn more about what tax breaks are available.