The 1099-MISC form works for self-employed professionals the way a W-2 does for employees. A business that hires a freelance web designer, for instance, sends her a 1099-MISC showing what she earned if it pays her $600 or more in a year. If you hire a nanny for your kids or a nurse for your father, the rules are trickier.
The government has rules for what counts as self-employment. If you drop your kids off at a day-care center, the owner is probably self-employed. A nanny who lives in your house is more likely an employee. The Internal Revenue Service has specific tests to determine employment status, such as whether you control how the caregiver works. If, say, you have the right to tell your nanny when and how to take care of your kid, you probably have an employer-employee relationship.
If you hire a caregiver who's genuinely an independent contractor, don't worry about sending a 1099. The 1099-MISC form is reserved for businesses that hire the self-employed. Hiring an independent contractor for personal services doesn't trigger the same requirement, no matter how much you pay. If, however, the caregiver qualifies as a household employee, you have to send him a W-2 reporting his income for the year and any taxes you withheld.
When to Withhold
As of the date of publication, if you pay an employee-caregiver more than $1,900 per year, you have to take Social Security and Medicare taxes out of her pay. If you pay more than $1,000 in a single quarter, you also have to pay unemployment tax. You never have to withhold federal income tax, though you can if she requests it. If your "employee" is your spouse, your under-21 kid or your parent, you don't have to take out any withholding, even if you pay her for helping you.
Things to Research
If you're not sure whether your caregiver is an employee, you can use Form SS-8 to ask the government to make the call. If the result is "employee," the IRS recommends you contact your state government. State law determines whether you have to withhold any state taxes from his pay and whether you have to take out workers' compensation insurance. The insurance covers employee injuries. Your homeowners liability policy won't protect your caregiver if he's hurt on the job.
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