IRS Wants You to Pay Payroll Tax on Caregivers; Good Days Senior Care Has Solution for Seniors and Their Families

An elderly person hiring an in-home caregiver -- or a family member doing it for them -- may not believe they are a full-blown employer. But the IRS does. To steer clear of trouble with the IRS, use a senior care firm that will handle all the legal requirements of being an employer.

Irvine, CA (PRWEB) May 25, 2005 -- The IRS is on the lookout for seniors who pay caregivers but fail to pay federal employment taxes. What the senior does not know, or does not want to know, is that caregivers hired to work in the home -- often called companions or aides -- are employees and not independent contractors.

With the deficit in the federal budget enduring into 2006, the IRS has been given the green light to increase audits on individuals.

“Caregivers that render in-home care to seniors are employees because they are not engaged in their own independently established business,” says James R. Urquhart III, a California tax attorney and the founder of Good Days Senior Care in Irvine, California.

When a worker is an employee, the IRS wants the employer to withhold and pay the federal employment taxes. “There is no exemption for caregivers that work in the home of the senior,” Mr. Urquhart says.

There are many requirements to legally hire and pay a caregiver. A federal employer identification number is needed because an individual social security number is not enough. A Schedule H (Household Employment Taxes) must be attached to the senior’s federal income tax return (Form 1040). Moreover, at the end of the year the caregiver must be provided with a Form W-2 (Wage and Tax Statement). Then a Form W-3 (Transmittal of Wage and Tax Statements) must be filed with the government.

That’s not all. There are more requirements to employ a caregiver. State tax laws must be met such as state unemployment tax contributions and workers’ compensation insurance coverage. Then you need to use Form I-9 to verify that the caregiver can legally work in the United States.

“Most people want nothing to do with all these rules. They just ignore them. That’s a big mistake,” Mr. Urquhart warns. “The IRS often audits up to three years’ worth of payments. On top of back taxes, interest and penalties will be added.”

“If you pay cash wages of $1,400 or more to any household employee then you must withhold and pay social security and Medicare taxes. Those taxes are 15.3% of cash wages. The employee’s share is 7.65%. The employer’s share is a matching 7.65%,” states IRS Publication 926 entitled Household Employer’s Tax Guide.

Withholding federal income tax from the caregiver is not necessary. “You do not need to withhold federal income tax from your household employee’s wages. But if your employee asks you to withhold it, you can,” the Tax Guide says.

The senior or the responsible family member must use Schedule H to report household employment taxes if cash wages of $1,400 or more are paid. “Most seniors and their families feel they won’t get caught,” Mr. Urquhart says. “That’s a fantasy. All it takes to get caught is for the caregiver to go down to the state unemployment office and file a claim for unemployment benefits after he or she is laid off. States share audit leads with the IRS.”

“There are things a senior can do to avoid stepping on a legal landmine,” Mr. Urquhart instructs. Resist the temptation to hire the caregiver yourself unless you want to be an employer that is responsible for state and federal payroll tax laws, workers’ compensation laws, and wage and hour laws. Use an in-home senior care firm. That firm should hire the caregiver, treat him or her as an employee, pay all relevant taxes, and file all relevant returns. In short, the senior care firm is the employer, not you.

You need to find out whether the senior care firm is using employees. “Be careful -- some senior care firms treat their caregivers as independent contractors and not as employees. That puts you at risk,” Mr. Urquhart cautions. “In my view, a senior care firm using independent contractors is playing hide-the-ball. They hide the fact that they have no workers’ compensation coverage and likely do not have liability insurance either.”

Good Days Senior Care treats its caregivers as employees. “In addition to founding Good Days, as a tax attorney for over 25 years I have represented many firms that treated their caregivers as independent contractors. They came to me after getting audited by the IRS or the state. Once we get into the heat of the audit or the appeal, they start to realize what a big mistake they made.”

The senior care firm must do more than treat the caregiver as an employee. “They should do a criminal background and motor vehicle department check, have liability insurance, and bond the caregiver,” Mr. Urquhart says. “All of these steps are needed to protect the senior client.”

For additional information on the news that is the subject of this release, contact Elisa M. Perez or visit

About Good Days Senior Care:

Good Days Senior Care is in the non-medical senior care industry. Founded in 2004, it is headquartered in Irvine, California. The mission of Good Days is to enhance the quality of life for those senior citizens who wish to remain in their homes.

Once the franchise registration process is complete, Good Days will offer franchise territories in states where registered. With the exception of the home office territory in Orange County, California, each Good Days franchise location will be independently owned and operated. The Good Days brand and Good Days technical systems will allow Good Days franchise owners to quickly establish their senior care business in their market.

Both Good Days and Good Days Senior Care are trademarks of Good Days Senior Care, Inc., incorporated in the State of California. Federal trademark registration is pending.


Elisa M. Perez, director of public relations
Good Days Senior Care, Inc.
Irvine Spectrum Center
7545 Irvine Center Drive, Suite 200
Irvine, CA 92618
+1 (949) 552-1900

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