My domestic (nanny, elder care giver, housekeeper) wants to be treated as a "contractor." Can I do that?
The simple answer is NO. A nanny, housekeeper, or home health aide that you hire directly is your employee under common law. It does not matter how many hours they work, whether the position is permanent or temporary, or how much you pay the worker.
Your nanny must be provided a Form W-2 every year for wage and tax reporting, and you must make payments to the Internal Revenue Service for Social Security and Medicare taxes, as well as the Federal Unemployment Tax (FUTA). It is improper to issue a Form 1099 to a nanny who earned $1800 or more (2012) in the year. Prosecution for willful mis-classification of employees as contractors is an enforcement priority of the US Department of Labor, and the Internal Revenue Service has entered into information sharing agreements with many states, including New York, California and Virginia, to facilitate enforcement.
» Historical Household Empoyment Wage Test Values
Under common law, a worker who performs services for you is your employee if you can control what will be done and how it will be done. It does not matter whether you give your nanny great latitude, but rather that you have the right to control the work. It does not matter if the work is performed on a full time or part time basis. It does not matter whether the worker lives with you or not. It does not matter if he/she is paid hourly, daily or a salary. It does not matter how the employee refers to herself or how you refer to him/her in an employment contract. The household worker is your employee and you are generally obligated for all payroll tax filings and remittances.
The IRS articulates strict guidelines that differentiate employees and independent contractors to further eliminate confusion. Nannies and other domestics are generally considered employees (Refer to IRS Publication 926: Household Employers Tax Guide). Remember, how the employee refers to herself or how you refer to her in an employment contract is immaterial. You are obligated for all payroll tax filings and remittances if you pay the worker $1800 or more in the calendar year (2012). The IRS has no statue of limitations when auditing and collecting nanny payroll taxes if you file false/fraudulent returns.
» Historical Household Empoyment Wage Test Values
The IRS has reaffirmed this stance twice in 1999. In two private letter rulings (PLR 199923014 and 199923015) the IRS disregarded a written contract's designation of a worker as a contractor, ruling that the substance of the relationship and not its label determines the worker's status.
» CALIFORNIA: CRACK DOWN ON MIS-CLASSIFICATION AS A CONTRACTOR? (December 2011)
» IRS & STATE UNEMPLOYMENT AGENCIES: ENFORCEMENT STEPPED UP
» MORE INFORMATION: WHEN IS A NANNY YOUR EMPLOYEE?
