When hiring a companion or home health aide (HHA) for an aging-in-place loved one your options include contracting with a home care agency or an independent caregiver or caregivers. Although independent caregivers usually charge less for the same personal care services, hiring through a home care company may pay unforeseen dividends in the end. Notably for seniors who live in California, here’s why saving a little money upfront may not outweigh the risks when your loved one’s nest egg weighs in the balance.
IRS Rules for Household Employers
For federal tax purposes, someone is classified as your household employee if you dictate what work they perform in the home environment, and how that work is done. An independent HHA is technically your household employee if they receive instructions on how to care for your loved one from you or another member of the family and you provide the equipment and supplies that they need.
Conversely, self-employed individuals like independent contractors decide how they perform their work and furnish their own supplies and equipment. That said, most private caregivers are not independent contractors.
Employment Eligibility Verification Requirements
Once you’ve determined that your private caregiver will be classified as a household employee, the next step is to verify that he or she can legally work in the United States. Prior to your new HHA getting started, the two of you must fill out IRS Form I-9 (Employment Eligibility Verification) and produce documentation that proves their eligibility to work in the US.
Although the completed I-9 Form does not have to be formally filed with any US government agency, you as their employer must keep a copy for your records. You’ll also need to apply for an Employer Identification Number (EIN) and document your household employee’s Social Security number.
Tax Obligations of a Household Employer
The federal and state tax amount that you must contribute for an independent caregiver who is a household employee will vary depending on which state you live in and how much you pay for their services.
For example, in California, a household employer is defined by the state’s Employment Development Department (EDD) as anyone “who has paid $750 or more in cash wages (checks and cash) to one or more household workers in a calendar quarter.” If you are paying a private caregiver $15 to $20 an hour, it won’t take long to hit that threshold.
Once that threshold is met, under law you must withhold State Disability Insurance (SDI) from the wages paid out and remit the withheld money to the EDD. If you pay more than $1,000 in wages during a calendar quarter, you must also remit Unemployment Insurance and Employment Training Tax payments to the EDD.
With all these requirements, it’s vital that you maintain detailed records related to your employee’s wages and taxes. Employment tax records must also be kept for at least four years after whichever is later, the due date of the tax return or the date when the taxes were actually paid.
Each time you pay the caregiver, be sure to record the date of the payment and itemize the following:
- Employee’s cash and non-cash wages
- Federal income tax withheld
- State employment tax withheld
- Social Security tax withheld or paid for your employee
- Medicare tax with or paid for your employee
Why Hire a Home Care Agency?
Although it may cost you a little more per hour for an in-home caregiver, partnering with a home care agency should save you money in the end. You can also rest easier knowing that under California law home care agencies must be licensed, provide ongoing training to their caregivers, and do background checks.
You also don’t have to concern yourself with employment eligibility verification, keeping detailed tax records, and paying taxes on behalf of your loved one’s caregiver like you would when hiring independent caregivers. It really is a winning proposition for you and your loved one!
Your Reliable Senior Home Care Company in Pasadena
At New Wave Home Care, we’ve been helping families in Southern California keep aging loved ones safe and comfortable in their own homes for 10+ years now. As a licensed home care provider, we support clients and their families with personalized in-home solutions like personal care, transitional care, respite care, dementia and Alzheimer’s care, and hospice support.
When you choose New Wave Home Care in Pasadena, you can rest assured that your loved one is getting the specialized care they need from a trusted, friendly caregiver. To learn more now or to schedule a FREE in-home assessment for a senior in the greater Los Angeles area please visit us at www.newwavehomecare.com.