Monday, September 16, 2013

The Real Facts Regarding; Tax Fraud, Unemployment, Social Security and Paying Caregivers 'Off The Books'

Paying Elder Care Workers “Off the Books” is Risky Business

You have found the perfect caregiver for your Mom and she starts on Monday. You release a huge sigh of relief – mission accomplished! Or maybe not – have you addressed the employment tax issue? Even families with the best intentions often overlook the fact that hiring the caregiver makes them an employer with legal obligations for employment taxes, workers compensation insurance, and worksite recordkeeping. Failing to recognize these responsibilities creates considerable risk to the family.

Tax Fraud

When you pay your senior caregiver off the books, you and the caregiver are committing tax fraud. Did you know household employment taxes are part of your personal Federal Income Tax Return? You file federal income taxes on penalty of perjury, and failing to report domestic wages can potentially be charged as a felony offense.

If you are caught, both you and your employee will be responsible for back taxes and penalties, not to mention legal fees incurred during the process. There is no statute of limitations on this crime, which means that you could get caught at any point in the future. Even after the employer's death, the estate can be held liable for back taxes.

Unemployment & Social Security

Unemployment insurance is a required component of employment taxes, as is the allocation for social security benefits.  If an employee is paid “off the books,” and these benefits are not funded by the employer, situations still exist where this omission can be revealed.  For example, you may have to let a caregiver go because living conditions shift from at-home to a live-in care facility; or an elderly person may have passed away.  At any point, the employee may file for unemployment or
social security benefits, even many years down the road. This is often the point where families get caught not paying the required taxes and insurance for domestic employees, as the issue is brought to the attention of the government.

On the flip side of this issue, paying a domestic employee on the books means that your employees have a safety net. By insuring that social security, workmen’s compensation and unemployment requirements are met you help protect your employee against unforeseen circumstances, and this constitutes the right thing to do from both a legal and ethical perspective.

The wages you pay your domestic employee may also entitle you to tax credits. You will want to explore this in detail with your tax advisor.


HomeWork Solutions Kathleen Webb is a nationally recognized expert on household employment tax matters. HomeWork Solutions assists families nationwide with their household employment tax compliance, and all CareLinx clients have access HomeWork Solutions services for no additional cost when using CareLinx to manage their caregiver online.

No comments:

Post a Comment