Many families strive to care for an aging parent at home, which can often mean paying a private sitter or care attendant. Such an employment arrangement can be filled with pitfalls regarding responsibility for taxes. This article touches some of those concerns.
A pretty good resource is IRS Publication 926: Publication 926 (2022), Household Employer’s Tax Guide | Internal Revenue Service (irs.gov)
If the caregivers are employees of a third party employer, such as a sitter agency, then they are definitely not employees of the “household employer” since the “household employer” is hiring a third party caregiving agency.
However, if the caregivers are not employed by a third party employer, then it becomes far more complicated. If the caregivers provide similar “caregiving” services to other “household employers” in the marketplace (providing care for other clients), it may be easier to argue that they are independent contractors rather than household employees. If the caregivers only provide “caregiving” services to just the “household employer,” then I believe the “household employer” rules apply.
In some cases it is easy. The “live-in (full-time) nanny” is a household employee. The “live-in (full-time) maid” is a household employee. ABC Senior At Home Care, Inc. is not a household employee.
As an employer, a client would be responsible for FICA taxes. Best practice may be to retain a payroll company who manages both the payment and the withholding issues for the caregiver. See www.irs.gov/taxtopics/tc756 FICA taxes come into the category of “trust taxes” meaning that a whole host of people have personal responsibility for the payment of these taxes. It is a serious matter to improperly fail to withhold and pay FICA taxes.
From a practical perspective, the liability issue in an elder law situation generally goes beyond the seniors, who may have limited assets, to their children, who may have more substantial assets, who were involved as power of attorney or other representative.
The legal answer is they need to put this person on payroll or use an agency. However, this may not be practical from a financial perspective.
At a minimum, I recommend that you consider outlining the issues to the client in the letter as to what their responsibilities are, reminding them that simply calling someone an “independent contractor” does not make it so. The IRS resources that I listed above are a terrific source to include in such a letter.