Advising clients hiring household help during the coronavirus pandemic

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The COVID-19 pandemic has placed a renewed focus on household employment.

Hiring private, in-home care may be seen as a safer option for childcare than a daycare facility or summer camp. In fact, with many daycare centers and camps closed or operating with limited availability, a private caregiver may be the only viable childcare option for parents who are returning to work in their offices.

Here’s what CPAs and their clients need to know when hiring an employee:

Permanent nannies

This type of hire is straightforward. Nannies are considered employees (not independent contractors) and the family becomes an employer. That means the family needs to obtain an employer identification number (EIN) and file a new hire report with the state. FICA taxes should be withheld from the employee’s pay (and the family pays their share) and the family will also pay state and federal unemployment taxes. Check with the state for other obligations like paid sick leave, disability insurance, workers’ compensation coverage and other household worker protections like a Domestic Workers’ Bill of Rights.

Temporary or summer nannies

A family may intend to hire a caregiver just for the summer in hopes that schools will reopen in the fall. Even through employment may be temporary, nanny tax compliance will apply if the employee grosses $2,200 or more. A full-time worker — or even a caregiver hired for part-time work — can easily exceed that threshold over the course of a couple of months. The family should follow the steps for becoming an employer and comply with household employment tax, wage and labor laws

Live-in caregivers

To reduce their children’s exposure to people outside their homes, families may choose to hire a live-in caregiver. There are some additional considerations with this type of employment. Live-in nannies are not always “on call” unless the family wants to pay for those hours. If they need to be at the family’s home and are not free to leave, then they need to be paid for those hours.

Families who employ a live-in nanny can exclude the cost of room and board from their caregiver’s pay as long as the meals and housing are provided in the family’s home, for the family’s convenience. If they choose to deduct this amount from their nanny’s wages, they still must pay them an hourly rate at or above the prevailing minimum wage (highest of federal, state or local rates).

In some states, families are not allowed to deduct the cost of housing from their nanny’s pay if the job requires them to live in the family’s house. Also, your client could be deemed a landlord if they take room and board out of their employee’s wages because now the nanny is considered to be paying rent. The family will need a landlord-tenant contract along with a work agreement.

Nanny shares

Nanny shares may be seen as more cost effective than hiring on your own and safer for children than a daycare center. In a nanny share, two families hire a nanny who then cares for the children in one of the family’s homes. Each family in a nanny share pays a portion of the nanny’s regular hourly rate (typically two-thirds) rather than their full rate. The families wind up paying less and the nanny earning more for handling multiple families. Keep in mind that each family in a nanny share is considered an employer and needs to follow all of the usual nanny tax, wage and labor laws.

Au pairs

President Trump just struck a blow to families hoping to employ an au pair this year. His recent proclamation to suspend “entry of aliens who present a risk to the U.S. labor market following the coronavirus outbreak” until Dec. 31, 2020 includes au pairs who have not obtained their visas yet. An au pair is a young, foreign person, typically female, who lives with a host family in the U.S. and helps with childcare. They receive a small weekly stipend along with room and board. This suspension likely removes employing an au pair as a childcare option going forward so families may turn to a professional caregiver instead.

Senior caregivers and companions

Seniors — who have been especially vulnerable to the coronavirus — are being hit hard by the pandemic. Families caring for elderly loved ones may be hesitant to place them in a nursing home or other assisted living facilities. For some, a safer option may be hiring an in-home caregiver or companion to help the senior age in place in their own home or be cared for in the family’s home. Hiring a private, in-home senior caregiver brings about the same types of employer responsibilities — like minimum wage and overtime rules as well as domestic worker protections — as employing a nanny.

Advising your clients

As parents start planning a return to their offices for work, now is the time to check in with your clients who may be considering their childcare (or senior care) options. Make sure they understand the tax and compliance implications of hiring someone to work in their home. Deciding to pay a caregiver under the table — and avoid tax obligations — may be more difficult than ever as illegally paid workers who lost their jobs were left without paid sick leave and unemployment benefits. More household employees than ever will want their pay “on the books” to ensure they have a financial safety net if they are let go.

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Tax planning Coronavirus Domestic workers