a cpa’s guide to household employment compliance€¦ · • sex and occupation • time and day...

A CPA’s Guide to Household

Employment ComplianceTrevor Sparks| Marketing Manager | GTM Payroll Services

Polling Questions

10/9/2019 © 2019 GTM Payroll Services, Inc. 2

• We will ask four questions during

the presentation

• You must answer at least three

questions in order to receive CPE

credit

• This course is 1 CPE credit hour

Today’s Agenda


1. Household Employment 101

2. Liability Insurance

3. Benefits of Being Compliant

Learning Objectives


• Understand employer and employee tax

responsibilities when a family hires someone to work

in their home

• Discover why properly classifying a household worker

is a critical first step to employment compliance

• Learn what documents are involved to set up a client

as an employer as well as file and remit household

employment taxes quarterly and at year-end

• See how lack of workers' compensation insurance can

be the costliest mistake a household employer can

make

• Know how to describe the benefits of being compliant

and the costly downside of ignoring household

employment laws

Who could be considered a

household employee?


Household employees may include:

• Nannies

• Babysitters

• Senior caregivers

• Senior care companions

• After-school care or tutors

• Seasonal or temporary childcare

givers

• Personal assistants

• Housekeepers

• Property or estate

managers

• Chefs

• Chauffeurs

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, they can be considered a household employer.

Nanny Tax Threshold


Employment Coverage Threshold

• Coverage thresholds for self-employed workers, farm

workers, domestic employees, and election workers

• Every year the IRS sets its Employment Coverage

Threshold

• Wages above this threshold trigger coverage under

the Social Security program

• Earning below the threshold aren’t taxable under

Social Security

• Threshold for domestic workers are tied to the

national wage index

Household Employment 101


The IRS defines a household employer as someone who pays an individual

who works in their home $2,100 (2019) or more in a calendar year.

IF you… THEN you need to…

Pay cash wages of $2,100 or more in 2018 or 2019 to any one household employee. (Do not count wages you pay to your spouse, child under age 21, parent, or any employee under the age of 18 at any time in 2019.)

Withhold and pay Social Security and Medicare taxes.• The taxes are 15.3% of cash wages.• Your employee’s share is 7.65% (You can

choose to pay it yourself and not withhold it)• Your share is 7.65%

Pay total cash wages of $1,000 or more in any calendar quarter of 2018 or 2019 to household employees. (Do not count wages you pay to your spouse, child under the age of 21, or parent.)

Pay federal unemployment tax.• The tax is 6% of cash wages.• Wages over $7,000 a year per employee are

not taxed.• You also may owe state unemployment tax.

Employee vs. Independent Contractor


Employee

A person who takes instruction from the employer, has a schedule set by

the employer and uses tools and equipment provided by the employer.

Independent Contractor

A person who works under their own conditions, sets their own schedule

and uses their own supplies.

What happens if your client misclassifies their domestic worker?

• Misclassification is considered felony tax evasion.

• Liable for the employee’s FICA taxes that were not withheld as well as

employer taxes.

• Enforcement by the DOL and IRS has increased.

• Refer to IRS Form SS-8 to determine a domestic worker’s status.

Hiring Senior Care


Hiring through a home health care agency

• Home health care agency employs caregiver; pays employee; files

employment taxes; and handles tax, wage, and labor law compliance

• Caregiver is an employee of the agency

Hiring through a referral or placement agency

• Agency recruits the senior care worker on behalf of family and charges

fee for this service

• Caregiver is an employee of family

• Family is responsible for payroll, taxes, insurance, and compliance

Hiring independently

• Family finds, recruits, and hires the senior care worker

• Caregiver is employee of family

• Family is responsible for payroll, taxes, insurance, and compliance

Hiring Senior Care


Who is considered the employer?

• Determined by who is giving direction to the senior

caregiver

• Typically, person receiving care is the employer

• If senior is unable to give direction, an adult child can

be considered the employer

• If senior is being cared for in their child’s home, then

child is employer as work in being done in their home

Legal v. Illegal


Examples of acceptable documents from IRS Form I-9

LIST A – Establish both identity and employment authorization• U.S. Passport• Permanent Resident Card

or Alien Registration Receipt Card

• Foreign passport that has a temporary I-551 stamp

• Employment authorization document that contains a photo

LIST B – Establish identity• Driver’s license or state ID

card w/photo or identifying information

• ID card issued by federal, state or local agency w/photo or identifying information

• School ID w/photo• Voter’s registration card• U.S. Military card• Military dependent ID

card

LIST C – Establish employment authorization• Social Security card (other

than those that do not authorize employment in the U.S.)

• Certification of birth abroad (issued by Dept. of State)

• Certification of report of birth (issued by Dept. of State)

• Birth certificate• U.S. Citizen ID card

ANDOR

Employer Tax Responsibilities


• Social Security & Medicare

– $2,100 paid to a domestic worker

– Tax amount is 7.65% of the

employee’s gross pay

• FUTA (Federal Unemployment

Insurance)

– Liable after paying employee

$1,000 per calendar quarter, up

to a maximum of $7,000 annually

• SUI (State Unemployment

Insurance)

– Thresholds vary by state, some

as low as $50

Employee Tax Responsibilities


• Social Security and Medicare

– Tax amount is 7.65% of their

gross pay

– 6.2% towards Social Security and

1.45% towards Medicare

• Federal Income Tax

– Based on income and withholding

allowances

– W-4 form

• State and Local Income Tax

– Based on residency, income and

withholding allowances

– State withholding form

Household Employment Tax Nuances


• Domestic Workers’ Bill of Rights

• Minimum wage

• Overtime pay

• Live-in workers

• Companionship care

• Paid leave regulations

• Domestic worker on company

payroll

Domestic Workers’ Bill of Rights


Domestic workers may be:• Excluded from basic state and federal labor rights

• Working long hours for low pay and no benefits

• Vulnerable to abuse and mistreatment

• Isolated from the traditional workforce

• Lacking typical workplace protections against unsafe

conditions, discrimination and sexual harassment

• Susceptible to being exploited by their employers

Domestic Workers’ Bill of Rights


• May determine:

– Days of rest, sick leave, vacation, work hours, maternity leave,

how often employee is paid, information to include on pay stub

• May require:

– Written work agreement, notice of termination, document

retention

• May re-establish

– Paid minimum wage and overtime

– Workers’ comp and unemployment eligibility

– Protections against harassment, discrimination, and retaliation

National Domestic Workers’

Bill of Rights


• Introduced by Senator Harris and Representative

Jayapal

• Ensure rights and protections of millions of household

employees

• Address exclusions of household employees from past

labor laws

• Establish innovative solutions to long-held problems

Minimum Wage


• Domestic employees are protected by FLSA

• Must be paid hourly

• Must be paid at least the applicable minimum

wage rate

• Federal rate is $7.25/hour

• Many states, counties, and cities have higher

rates

• The highest applicable rate applies

Overtime Pay


• Domestic employees are non-exempt workers

• Can’t pay a nanny a “fixed salary”

• Must be paid time-and-a-half for hours worked over 40

in a 7-day work week

• Live-in employees are often exempt for overtime

requirements

• Caregivers meeting companionship care definition are

also exempt from overtime

Live-in Domestic Workers

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• Live-in employee:

– Work at primary residence, or

– 5 or more 24-hour shifts in 7-day period

• Up to 8 hours of sleep time can be unpaid, if employer:– Provides adequate sleeping facilities

– Allows for 5+ hours of continuous sleep

– Has written agreement with employee

** California does not allow some sleep time to be unpaid

• Overtime– Federal law exempts live-in employees from OT requirements

– Some states have own OT requirements for live-in employees

** In New York, OT doesn’t start until 44 hours work in a week

© 2019 GTM Payroll Services, Inc.

Case Study

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• Family New York hired a live-in caregiver for an elderly

parent

• Came to GTM for tax and payroll services

• Planned to have employee work 7 days/week with no

overtime pay

• GTM advised:

– Pay time-and-a-half for overtime hours

– Implement one day of rest per week

– Maintain records of time and pay in case of an audit

• Result: family is in compliance with federal and state

wage requirements and protected in case of audit


Companionship Care Exemption

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• What is companionship care?– Defined as “fellowship and protection” for a person who, because of

advanced age or infirmity, is unable to care for himself or herself.

• Overtime requirements also don’t apply if:– If care meets this companionship care definition

– Less than 20% of worker’s time can be spent on activities like bathing,

dressing, preparing meals, driving to appointments, housekeeping etc.

– Some states require OT for all workers; exemption may not apply

• May benefit family to hire directly– Could see significant savings with companionship care exemption

– Exemption doesn’t apply to caregivers hired through third party


Paid Sick & Family Leave

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• Household employers may need to follow paid

leave requirements for their state

• Examples:– Massachusetts Paid Family and Medical Leave

– New Jersey Paid Sick Leave

– New York Paid Family Leave

– Washington, DC Universal Paid Leave

• Hours accrue at various rates

• Amount of leave may be capped

• Accrued leave could be carried over


Domestic Worker on Company Payroll

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• Domestic employee can’t be paid through

business payroll

• Tax deductions on business payroll require all

employees be “direct contributors to the

success of the business”

• IRS has ruled domestic workers do not qualify

as direct contributors

• Including domestic worker on business payroll is

an illegal tax deduction


Do Not Use Form 941

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• More work

• Potential penalties

• Dual reporting

• Accounting issues

• Use Schedule H


Recordkeeping and Reporting

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• Employee's full name and social security number

• Address, including zip code

• Birth date, if younger than 19

• Sex and occupation

• Time and day of week when employee's workweek begins.

• Hours worked each day and total hours worked each workweek.

• Basis on which employee's wages are paid

• Regular hourly pay rate

• Total daily or weekly straight-time earnings

• Total overtime earnings for the workweek

• All additions to or deductions from the employee's wages

• Total wages paid each pay period

• Date of payment and the pay period covered by the payment


Recordkeeping and Reporting

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• Keep payroll and tax records for at least

4 years after the due of the return

• Retain copies of Schedule H, W-2, W-3,

and W-4

• For unemployment tax purposes, retain:– Total amount of employee compensation

– Amount subject to unemployment tax

– State unemployment contributions


Avoid 7 Common Mistakes When Your

Client Hires a Nanny

10/9/2019 29

1. Classifying a household worker as an

independent contractor

2. Missing or incorrect submissions

3. Fail to pay taxes properly

4. Ignore minimum wage and overtime laws

5. Lack of knowledge about labor law nuances

6. No workers’ compensation coverage

7. Fail to take advantage of tax breaks


Workers’ Compensation


• Workers’ Compensation is an

insurance policy that helps

with medical expenses and

lost wages if an employee is

injured or becomes ill on the

job.

• Household employers are

required to have a workers’

compensation policy for their

domestic workers in many

states.

Who Does it Benefit?


• Employer: covers medical bills

and a portion of the employee’s

wages

• Employer: protection from a

lawsuit

• Employee: ensures that medical

coverage and some of their lost

wages will be paid for should an

accident or illness occur

Does Workers’ Compensation

benefit the employer or the

employee?

Homeowner’s Insurance Coverage


• Families should never assume that

this liability is covered under

their homeowner’s insurance.

• A single work-related accident

could leave an employer liable for

medical bills and lost wages, so it

is important to ensure that you

are covered.

Is Workers’ Comp covered under my

Homeowner’s Insurance Policy?

Workers’ Compensation Penalties


• In states where Workers’ Comp insurance is required,

families can be fined for not carrying Workers’ Comp.

• Fines can be as high as $5,000 for every 10 days

without Workers’ Comp.

• Fines over $30,000 are not uncommon; recently saw a

$120,000 fine for not having Workers’ Comp.

• States that require Workers’ Comp:

Full-time & part-time domestic workers: AK, CA, CT,

DE, DC, HI, IA, KS, MD, MA, MN, NH, OH, OK, SC, SD

Full-time only: CO, IL, KY, MI, NJ, NY, UT, WA

Case Study - Workers’ Compensation


• Family hires a nanny and both parties agree to pay “off the books.”

• Nanny injures her back while carrying the child.

• Nanny goes to the hospital and says the injury occurred while at work.

• Doctor prescribes bed rest and physical therapy.

• Nanny will miss 2-3 weeks of work but expects to have medical bills paid

and receive normal pay during recovery.

• Family doesn’t want to compensate nanny while paying interim help.

Result:

• Family will be exposed for not paying their employee legally.

• They will face further penalties if they live in a state where workers’ comp is required!

Benefits of Being Compliant


• Avoid expensive fines from the IRS and lawsuits from

disgruntled employees.

• Reduce legal risk, audit risk, and the risk of being fined

by Workers’ Compensation Board.

• Take advantage of tax breaks:

– Dependent Care Flexible Spending Account (FSA)

– Child and Dependent Care Tax Credit (Form 2441)

• Employees have legal employment record and are

protected.

• Employees have verifiable income.

Dependent Care Tax Breaks


Dependent Care FSA

• Pre-tax funds through an employer sponsored plan

• $5,000 cap/year per family

• Reduces taxable income

• Family could save $2,000-$2,300/year depending on

marginal tax rate

Child and Dependent Care Tax Credit

• Claim up to $3,000 of qualifying child care expenses for

one child ($6,000 for two or more).

• Receive 20% tax credit; saves family $600 or $1,200

Senior Care Cost Reductions


• Long-term care insurance

• VA benefits

• Medical expense deductions (IRS Publication

502)

• Medical Care or Health Care Flexible Spending

Account (FSA)

• Dependent Care FSA

• Child and Dependent Care Tax Credit

10 Steps to Household Employer Tax Compliance


1. Obtain household employer tax IDs (federal & state)

2. File New Hire Report

3. Calculate employee tax withholdings and track all federal/state employer taxes

4. Prepare and distribute paystubs

5. File quarterly state employment tax returns and remit tax dollars

6. File federal 1040-ES quarterly and remit federal taxes

7. Prepare and distribute Form W-2 to employee by January 31

8. Prepare and file Form W-3 with the SSA by January 31

9. Prepare Schedule H to file with federal income tax return

10. Monitor tax and labor laws for changes

Don’t Procrastinate


• Clients may think this

can be handled at tax

time

• Haven’t been

withholding taxes

• Not following overtime

and minimum wage rules

Resources


• IRS Publication 926, Household Employer’s

Tax Guide

• IRS Form SS-8, Determination of Worker

Status

• IRS Circular E, Employers Tax Guide

• IRS Form 1779, Independent Contractor or

Employee

• IRS Form W-4, Employee’s Withholding

Allowance

• IRS Form I-9, Employment Eligibility

Verification

• State Withholding Forms

• How to Hire a Nanny and How to Hire a

Caregiver for Your Senior

Laurie Sieling


CPA Partner Manager

Household Sales Manager

[email protected]

(518) 836-2511

mailto:[email protected]

Thank You!


GTM.com/Household

(800) 929-9213

[email protected]

a cpa’s guide to household employment compliance€¦ · • sex and occupation • time and day...

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