Tax Tips for Caregivers: Household Employee vs. Independent Contractor

If you are considering working as a caregiver, and you are not going through an agency to do so, there are some important things you should know when setting up a formal arrangement with an elderly client. When you look at the big picture, it appears you will be self-employed – you’ll basically get to set your own hours, you won’t have to report to anyone and you have no boss to answer to – except your client. That last factor is the one thing that changes everything when it comes to technicalities like taxes. When you zoom in on a caregiving position, it’s important to realize that you are technically not self-employed, you are employed by the elderly person, or their spouse, who asked you to care for them. Although this detail tends to confuse people, it is extremely important to know when it comes time to file your taxes at the end of the year. So, if you are confused about household employee vs. independent contractor roles, here is the run down.  

Household employee vs. independent contractor: Understand the Difference

What is an independent contractor?

Independent contractors are offering services to the public, and their clients have the “right to control or direct only the result of the work and not what will be done and how it will be done,” according to the Internal Revenue Service or IRS. This means that the client is using the service, but not directing the person doing it. Plumbers, repairmen, or contractors are good examples of independent contractors. You ask them to fix your leaking sink, but you don’t stand over them and tell them how to do their job. When it comes to caregiving, you are offering a service, but most likely your client is setting the guidelines for what needs to be done and how or when.

What is a household employee?

A household employee is someone who works in or around a residence, and who is paid by the people living there to perform a service for them, according to the IRS. Some examples of household employees include nannies, house keepers and you guessed it – caregivers! In this case, for example, there is an elderly person who needs to be fed only certain types of food three times a day, bathed, and helped to the bathroom. These are specific tasks given to the caregiver and set by the person paying them.

Why are caregivers not self-employed?

So, why should you choose to be a household employee instead of an independent contractor? The reason you want to be classified as a household employee when working as a caregiver is because, first of all, that’s how it should be done according to the federal government. You don’t want to be breaking the law or get in trouble for filing your taxes incorrectly. Aside from that, it is most likely more beneficial financially for you to be considered a caregiver, because you may end up paying more taxes as an independent contractor. For example, independent contractors get paid by their clients, and then they are responsible for paying their own taxes on things like Medicare and Social Security at the end of the year. Household employees, on the other hand, should split the responsibility of withholding taxes for Medicare and Social Security with their employer, or the person they are caring for.

So how do I file taxes as a caregiver?

Establishing whether you will be a household employee or an independent contractor is important, because there are certain steps both you and your client must take prior to you getting paid. That way at tax time, you’re both on the same page and there is no confusion.

Here are some tax obligations for caregivers, so that you can understand the entire process for how to be a household employee. Although it sounds complicated, once you set up these documents there are many benefits to working as a caregiver.