Feb 03

Family Caregivers and Self-Employment Tax

Special rules apply to workers who perform in-home services for elderly or disabled individuals (caregivers). Caregivers are typically employees of the individuals for whom they provide services because they work in the homes of the elderly or disabled individuals and these individuals have the right to tell the caregivers what needs to be done. These services may or may not be provided by a family member. If the caregiver employee is a family member, the employer may not owe employment taxes even though the employer needs to report the caregiver’s compensation on a Form W-2. See Publication 926, Household Employer’s Tax Guide for more information. However, in some cases the caregivers are not employees. In such cases, the caregiver must still report the compensation as income of his or her Form 1040, and may be required to pay self-employment tax depending on the facts and circumstances.

The following FAQs illustrate some fact patterns involving family member caregivers who are not employees.

Q 1: Must a taxpayer pay self-employment tax on the income she received from an insurance company to care for her spouse who was injured in an accident and permanently disabled? The taxpayer is caring for her spouse in their home in an effort to avoid moving him to a nursing facility and also to reduce care giving costs. The spouse requires assistance with dressing, bathing, eating, etc; the taxpayer also administers medication and helps with basic physical therapy. Taxpayer is neither a trained nurse nor therapist and doesn’t provide such services to anyone other than her spouse. Taxpayer received Form 1099-MISC from the insurance company with the amount paid shown in Box 7 as nonemployee compensation.

A 1: No, the taxpayer does not owe self-employment tax on amounts reported on the 1099-MISC she received from the insurance company if she is not engaged in a trade or business of providing care giving services, as appears to be the case in this situation. The taxpayer must report the full amount of the payment on line 21, Other Income, of Form 1040.

Q 2: Must a taxpayer pay self-employment tax on the income received from a state agency to care for his grandchildren so that his daughter can work? Taxpayer doesn’t have a day care business or look after any other children. Taxpayer receives Form 1099-MISC from the state agency with the amount paid shown in Box 7 as nonemployee compensation.

A 2: No, the taxpayer does not owe self employment tax on amounts reported on the 1099-MISC he received from the state agency if he is not engaged in a trade or business of providing day care services, as appears to be the case in this situation. The taxpayer must report the full amount of the payment on line 21, Other Income, of Form 1040.

Q 3: Must a taxpayer pay self-employment tax on the income received from a state agency to care for her grandmother if the taxpayer operates a sole proprietorship adult day-care business for multiple clients, including her grandmother, in her home? The state agency pays for the care so that the grandmother need not be institutionalized. Taxpayer receives Form 1099-MISC from the state agency with the amount paid shown in Box 7 as nonemployee compensation.

A 3: Yes, the taxpayer owes self-employment tax since the taxpayer is engaged in a trade or business of providing care giving services as a sole proprietor operator of an adult day care. The taxpayer must report the full amount of the payment as income on both Schedule C and Schedule SE.

References/Related Topics

Mar 11

Form 4852 substitute for Forms W-2, W-2c and 1099-R

Form 4852 serves as a substitute for Forms W-2, W-2c, and 1099-R and is completed by taxpayers or their representatives when:

  • Their employer or payer does not give them a Form W-2 or Form 1099-R, or
  • An employer or payer has issued an incorrect Form W-2 or Form 1099-R, and has not issued a Form W-2c or corrected Form 1099-R after you have requested it.

In Taxwise, you can add the 4852 form to a tax return  from the Forms list by typing in 4852 or Substitute.  The software will ask if the substitute is a W2 or 1099R.

Mar 18

Apply for Extension of Time for Payment (Form 1127-A)

Summary:

  • Complete form 1127-A and print two copies for taxpayer.
  • Prepare a 1040-V leaving Box 3 blank and print out a couple of copies.
  • Give taxpayer envelope with mailing address.  Tell them they can also make the payment at most IRS Walk-In offices.
  • Suggest that taxpayer make payments as soon as possible, to reduce the amount of interest, and let them know that the total plus interest must be paid by October 15, 2012.
  • Tell taxpayer, if they have not received a recent payoff statement, to call 800.829.1040 prior to mailing the last payment so they can get the payoff amount.

Links:

Background and Procedure

Form 1127-A

1040-V(Payment Voucher)