Clarifications on hiring employees for child care
Condensed and summarized by Fernando Olmedo
Federal Rules Obtain an Employer Identification number (EIN).
Fill out Form I-9 to verify that the employee is eligible to work in the U.S.
Have the employee fill out Form W-4 to determine if you must withhold federal income taxes from the employee's pay
Withhold social security and Medicare taxes quarterly (Form 941). If you pay less than $4,000 in wages in a year, you can instead file an annual Form 944.
Pay federal unemployment taxes annually (Form 940).
File annually Forms W-2 and W-3 to report Social Security and Medicare taxes.
If you hire more than one unrelated person, you will have to pay at least federal minimum wage of $7.25 per hour. If your state minimum wage is higher, you must pay your state minimum wage. State law may require you to pay the state minimum wage even when hiring only one person. The minimun wages in Illinois are $8.25/hour.
To obtain these federal forms contact the IRS at: http://www.irs.gov/; or 1-800-829-3676.
State RulesYour may have rules that require you to:
Report new hires
Withhold state income taxes
Pay state unemployment taxes
Purchase workers’ compensation insurance
Check with your state department of labor for further information.
This handout was produced by Resources for Child Caring (www.resourcesforchildcare.org ). For additional family child care business publications, contact Resources for Child Caring’s publishing division, Redleaf Press, at 800-423-8309 or visit www.redleafpress.org.
Hiring Family Members
Many providers hire their own family members and take advantage of IRS rules that allow them to reduce their taxes. If you hire your own children under age 18, your children will not have to pay any Social Security taxes. Wages paid to your children to do work for your business are 100% deductible. If you hire your own children who are over age 18 or if you hire your own spouse, wages paid to them are subject to Social Security taxes and federal income taxes. So there is no significant tax benefit to hiring children over age 18 or your spouse unless you set up a medical reimbursement plan and claim medical expenses as a business deduction.
Providers who do hire their own family members should be careful about keeping the proper records. The IRS is initially suspicious of these arrangements because they assume that providers are trying to claim a business deduction without meeting the requirements of an employer hiring an employee. Providers who are sloppy about their record keeping can get into trouble if they can't show that their child did the work for which they were paid.
Here are the records you should keep if you hire your own children or spouse:
Get a taxpayer identification number from the IRS (Form SS-4 can be filled out online at www.irs.gov).
Prepare a job description that details what are the responsibilities of the job: play with the children, clean up before and after the children, prepare meals for the children, clean toys, record keeping, etc. Do not include more personal activities such as shopping, mowing the lawn, running family errands, etc.
Prepare a written agreement between you and your family member that describes the employment arrangement: days and hours of work, pay, etc. Both parties should sign this agreement.
Keep a daily record of when the work was done. If the work done is the same every day, simply record the days and hours worked: Monday 9am - 10am, Tuesday 9am - 10am, Wednesday 9am - 10am, etc.
Write out a receipt for each payment, get the family member to sign it, and keep a copy: "Payment of $25 cash for 5 hours of work January 3 - 7, 2007." It is not necessary to pay by check; you can pay with cash. Make this payment out of a separate business account if you have one.
Payments to family members must be reasonable. If you have a $15,000 business profit, it is unreasonable to pay your own children $6,000 in wages. Payment of $20 per hour to your 15 year old is also unreasonable. The test of what is reasonable is probably how much you would be willing to pay someone who is not a family member. If you also give your child an allowance, keep a record of when you gave this allowance and how much it was.
Does Paying Someone Less than $600 a Year Make Them an Independent Contractor?
No!
Unfortunately, many family child care providers and tax professionals make this mistake. They assume that they can treat a person who helps them care for children as an independent contractor because they pay the person less than $600 a year. Wrong.
When you hire someone to help you care for your day care children you have an employee, not an independent contractor.
This is true even if you paid the person $50 in a year! It's true even if you hire your grandchild!
When would you have an independent contractor? If you hired someone to clean your home, mow your lawn, or shovel your driveway - you have an independent contractor.
If you hire someone who does a music lesson or puppet show for the children, this person is also an independent contractor. This is because the person does not operate under your direction or control.
Note: There are two situations where you might hire someone to help you care for children and the person would be considered an independent contractor.
The first situation is a person who is self-employed in the business of providing substitute care for child care providers. Such a person should have a business name registered with your state and their own taxpayer identification number. She should work for more than one child care provider each year and use her own contract.
The second situation is when you hire a substitute through an employment agency and you pay the agency rather than the substitute.
There is a big difference between hiring an independent contractor and an employee.
If you had an independent contractor (which you probably don't!) you would only have to give this person (and the IRS) a Form 1099 Misc if you paid them $600 or more in a year. You are not required to file any other forms or pay any payroll taxes. You can deduct what you paid the person as a business expense.
If you have an employee you must withhold and pay Social Security/Medicare taxes, pay federal and state unemployment taxes, perhaps purchase workers' compensation, and file a lot of federal and state tax forms
I can hire a 16 years girl school, fewer than 18, for cleaning my Daycare? What is the most and least that I can pay her? I can put it as a deduction on my taxes? Should I fill out a form as an employee, or just with the pay check is enough?
- Yes you can. If a person is hired to do a job as an independent contractor (as you are about to ChildServ or YWCA), not as an employee, there isn’t maximum or minimum pay, she does her work, as a doctor, a plumber ... - and you pay for it. If you hired her as an employee, the minimum is $8.25 per hour, but there are special laws for those under 18. Of course it is a deduction on your taxes, and if you only work in child care, is deducted the total amount that you have paid as a business expense. It's a good idea to make a contract, but is sufficient for the IRS to paycheck and a 1099-self-employed (the same as you are commanded by Controller Illinois).
To hire an assistant older 18 years, apart to fill the DCFS qualify asks, I must hire her for 40 hours, or I can decide the works hours available, as work goes up or down? Is it better to fill out the forms as an employee or as a contractor? Do I need to hire contract this wizard? If I hire her as a hired person and she doesn’t fill her taxes, can I have problems with the IRS? Should I ask her to complete the Form 1099-MISC to make sure that she reports and I’ll have no problems with the IRS?
- You choose the hours she will work, it haven’t to be 40.
- Make a contract is a good idea.
- When a person works regularly at home, is legally an employee. However, the only way to employ a person is paying a good accountant to take care of the fees deducted paycheck of employee.
To avoid that expense most providers hire them as "self-employed". It is not legal, and the IRS may require to hire as employees, but so far I do know, there aren’t any provider who has had trouble hiring assistants as "independent contractors", even when the IRS has done an audit for other causes. If you had an employee, you would have to pay half of the social security taxes and medicare of the employee, but if we put her as hired independent, the person employee then has to pay all their social security taxes and medicare to make her own "income tax ". That usually leads to problems. To avoid this, make sure to hire her to make that clear, or find a solution that is fair to both, as reporting only half of you pay her, or pay her half of the social security taxes and medicare.
- The employee don’t fill the Form 1099-MISC, you fill it. You can be crafted in ways that made sold in stationery stores, or you full it and sends electronically to the person who making your rates. He should send it to the worker in January, but if he haven´t done, send it anyway. If the employee does not report, you are not in trouble, she will be in trouble. Your accountant can fill out the form 1099-misc and should not charge you for that, it's too easy.
To hire a person, he must be licensed and legal insurance, or your ITIN number is enough?
- You don´t need a license. It is not legal to hire a person who hasn´t social number or permission to work legally in USA. But they don´t ask you to verify that the number she gave you is good. Write down the number that your put in the form "Permission to review the record" and use it to fill the 1099-MISC. If it isn´t good, at the end of the year you will receive a letter saying that you shouldn´t re-hire that person because he has no work permit. But don´t problem for you.
If in previous years we have kept only canceled checks and receipts with the worker's signature ... Is it okay if an audit?
- It's perfect. You don´t need more, it proof that he worked for you and you paid.him
Each year we receive a 1099-MISC Healcare IL SEIU Benefit Fund, with an amount as "non employee compensation" How report we this amount on our taxes, as income and / or deductions? Because it's not really the amount that we receive as income, and nor the amount that they pay to doctors.
- It is an income then put it as income. The amount you get (6226.08 for 2012) is the insurance that they are giving away. You must declare any gift over $ 5,000. Medical expenses can have them as "itemized deduction" in the form A- the third page of your income tax-. Sometimes the standard deduction is more than the detailed, and then medical expenses would not appear.
The cost of your insurance increases your rates to declare additional income $ 6.226. Your rates increase by about $ 952, but can increase to $ 1,200, and sometimes they are $ 600, and if your income is very low and reach to receive a credit for the income it can increase the returns. The only way to know is to ask your accountant that looks at as change yours rates when you put on and take that amount.
If your husband has a work insurance and this insurance cover you for free, don´t take the safety of the Union. If not, take the safety of the Union, if you had to pay it, you would pay about $ 12,000 per year, get it for $ 1,200, or $ 600, or nothing, is a true gift.
If in previous years we have kept only canceled checks and receipts with the worker's signature ... Is it okay if an audit?
- It's perfect. You don´t need more, it proof that he worked for you and you paid.him
Each year we receive a 1099-MISC Healcare IL SEIU Benefit Fund, with an amount as "non employee compensation" How report we this amount on our taxes, as income and / or deductions? Because it's not really the amount that we receive as income, and nor the amount that they pay to doctors.
- It is an income then put it as income. The amount you get (6226.08 for 2012) is the insurance that they are giving away. You must declare any gift over $ 5,000. Medical expenses can have them as "itemized deduction" in the form A- the third page of your income tax-. Sometimes the standard deduction is more than the detailed, and then medical expenses would not appear.
The cost of your insurance increases your rates to declare additional income $ 6.226. Your rates increase by about $ 952, but can increase to $ 1,200, and sometimes they are $ 600, and if your income is very low and reach to receive a credit for the income it can increase the returns. The only way to know is to ask your accountant that looks at as change yours rates when you put on and take that amount.
If your husband has a work insurance and this insurance cover you for free, don´t take the safety of the Union. If not, take the safety of the Union, if you had to pay it, you would pay about $ 12,000 per year, get it for $ 1,200, or $ 600, or nothing, is a true gift.
Hiring employees yours childrens
“I’ve heard the term “casual labor” in referring to hiring my children. What does this mean?"
- Casual labor is another term for an independent contractor. You do not have an independent contractor when hiring your own children. You must treat your children as employees.
“Is there a minimum age for paying your child?”
- Federal law prohibits you from hiring anyone under age 14 who is not a family member. There is no federal child labor law regarding hiring your own children. So, you could pay you eight or nine year old to help you clean up after the children, set the table, etc. However, your state labor law may prohibit you from hiring your own children under age 14. Check with your state department of labor.
“If I paid my 16 year old daughter to help me care for children how much can she earn before she has to pay taxes?”
- Children of your own under age 18 who earned less than $5,950 in 2011 do not have to pay Social Security or federal income taxes. And they don't income taxes.
“Where on my tax forms do I put the amounts I paid my own children?”
- Schedule C, line 26 Wages.
“Can I only pay my own children for work they do after the daycare children are gone?”
- No. You can pay your own children to do work while children are present (cleaning, setting the table, teaching other children, helping you with activities, etc.).
-You can hire him and deduct family medical costs, including health insurance premiums by setting up an IRS Section 105 medical reimbursement plan. You don’t have to pay your husband a salary and thus avoid paying any payroll taxes.
Hiring employees: your husband retired
“My husband will soon be retiring. Should I hire him so we can deduct health insurance premiums?”
-You can hire him and deduct family medical costs, including health insurance premiums by setting up an IRS Section 105 medical reimbursement plan. You don’t have to pay your husband a salary and thus avoid paying any payroll taxes.
Hiring employees: retired
“Do I have to pay Social Security tax on the retired person that mows our lawn during the summer?”
-No. An individual you pay to mow your lawn, clean your home or do gardening is an independent contractor, not your employee. Therefore, you don’t have to withhold or pay Social Security taxes. If you pay individuals $600 or more in a year you must give a copy of IRS Form 1099 to the worker and send a copy to the IRS. If you hire a company to do this work, you do not have to issue Form 1099.
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