Are home health aides employees of the individual or family they support?
Individuals or families hire home health aides and other in-home caregivers through a licensed home care company or as independent in-home caregivers. If you hire a caregiver through a home care company, then the caregiver may not be your employee, but rather you would be a client of their employer. Hiring an independent caregiver, on the other hand, generally makes that person your household employee. Having a household employee means that you are that person's employer, even if they sign a contract or are an independent contractor.
Is a caregiver an independent contractor?
It is rare for an in-home caregiver to be an independent contractor. If you have the right to tell the caregiver when they need to work, or how the work needs to be done, then you likely have an employer-employee relationship. In this case, the caregiver would not qualify as an independent contractor.
Determining what category a caregiver belongs to, independent contractor or employee, is very important. There can be significant penalties for misclassifying a household employee as an independent contractor. If you are unsure whether a caregiver is an independent contractor or a household employee, you can ask an attorney.
Do you have to withhold and pay taxes on a caregiver's wages?
Whether you need to withhold and pay taxes on a caregiver's wages depends on the amount of pay the caregiver receives during the tax year. Neither you nor the caregiver are required to pay Medicare or Social Security taxes if the caregiver's wages are less than a certain threshhold that typically increases annually. For the 2023 tax year, if you paid a caregiver $2,600 or more, then you are required to withhold and pay Medicare and Social Security taxes on their wages. For the 2024 tax year, that threshhold increased to $2,700 or more. Medicare and Social Security taxes are equal to 15.3% of the caregiver's wages. Generally, you and the caregiver will each pay one-half of the 15.3%.
In addition to Medicare and Social Security taxes, if you pay a caregiver more than $1,000 of wages in any quarter during the tax year, then you must also pay federal unemployment taxes (FUTA) on the caregiver's wages. FUTA is 6% for the first $7,000 paid to the caregiver. This amount is paid solely by you and not by the caregiver.
When you hire an independent in-home caregiver, you become an employer of the caregiver, which creates certain tax requirements that can be complex and nuanced. You may want to speak to a lawyer to determine the tax requirements for your specific situation.
Do you have to issue a 1099 to a caregiver?
Taxpayers often believe that they are required to provide a Form 1099-NEC to the caregiver that they hired if the caregiver is an independent contractor. However, you are seldom required to send Form 1099-NEC to a caregiver. Business taxpayers use form 1099-NEC to report nonemployee compensation. You are not a business taxpayer just because you hire an in-home caregiver. Therefore, you typically would not need to file a 1099-NEC.
If the caregiver is genuinely an independent contractor, and not a household employee, then the caregiver will report the amount paid by you as income and will be responsible for their own self-employment taxes.
Usually, the caregiver will be classified as your household employee, and you will be required to provide them with a W-2.
Is there a tax deduction or credit related to paying a caregiver?
Taxpayers often overlook deductions and credits related to caregiver expenses. However, these deductions and credits can reduce the financial burden of hiring an in-home caregiver. Caregiver expenses may result in child and dependent care credit or a medical deduction on the tax return of the person who hires and pays the caregiver. The IRS has stated, however, that the same expense may not qualify for both the child and dependent care credit and a medical deduction.
You may qualify for the child and dependent care credit if you paid a caregiver to look after a qualifying individual that fits into one of the three categories below:
- Your dependent child who is under age 13.
- Your spouse who is physically or mentally incapable of self-care and lived with you for more than half of the year.
- An individual who is physically or mentally incapable of self-care, lived with you for more than half the year and was your dependent or could have been your dependent with certain exceptions. The IRS provides additional information regarding the child and dependent care credit.
For 2023, the child and dependent care credit is worth up to $3,000 if the caregiver cared for one qualifying person or $6,000 if the caregiver cared for more than one qualifying person. Note that the child and dependent care credit was temporarily increased for 2021, but returned to the prior level the following year.
You may be able to deduct caregiver wages as medical expenses, although certain conditions must be met. First, it is normally required that the caregiver be providing services prescribed by a licensed healthcare practitioner. Next, the medical expenses must be for your dependent, which can include a qualifying adult dependent. Finally, you need to itemize deductions, instead of claiming the standard deduction, to benefit from deducting medical expenses.
Are there special rules if the caregiver is providing services for a family member?
Yes, if the caregiver is a family member, there are special rules that may apply. Often Medicare and Social Security taxes are not required to be paid on wages for a caregiver who is a family member. The caregiver's wages would still be reported on Form W-2 and would be taxable income to the caregiver. If you are hiring a caregiver that is related to the person being cared for, you might consider consulting with a tax expert to see if your specific circumstances require you to withhold employment taxes on the caregiver's wages.
To learn more about tax issues surrounding in-home caregivers, ask a Rocket Lawyer network attorney for affordable legal advice. If you need tax help, Rocket Lawyer can now match you with a tax pro for affordable and convenient tax filing services.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
