The HomePay Blog

When things change, we're on it. If it concerns household employment,
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What Families Need to Know About Companion Care

by Breedlove January 6, 2015

For several decades, home care “companions” have provided care to elderly individuals. The employers of these workers (whether privately employed by the family or employed by a third-party Home Care Agency) were not required to pay overtime (nor minimum wage in some states). This has been known as the “Companion Care Exemption” because these workers were exempt from federal wage and hour law as defined by the Fair Labor Standards Act (FLSA).

The effect of this exemption has been to keep wages low, thereby making overall care costs more affordable. However, worker advocacy groups have argued that many senior care workers live at or near the poverty level, despite working very long hours. As a result, the industry has frequently struggled to attract enough high-quality workers – a shortage that many experts predict will become more dramatic as our citizenry ages.

The DOL Announces Changes
In late 2013, the Department of Labor announced two changes. First, they said that the Companion Care Exemption would only apply in cases where the family is the direct employer. Therefore, all third-party workers (employed by a Home Care Agency) would be entitled to overtime effective January 1, 2015.

Second, the DOL narrowed the definition of “companion care.” It is now defined as service that is predominantly fellowship and protection in nature. If a worker is asked to keep the patient company (reading, watching TV, talking, playing games, strolling, etc.) and safe (make sure the gas on the stove is turned off, the heater is working, etc.), they can be classified as a companion – as long as less than 20% of the worker’s time is spent on ADLs (Activities of Daily Living such as bathing, dressing, meal preparation, light housekeeping, etc.).

The DOL Gets Challenged
The National Association of Home Care and Hospice (NACH) as well as the Home Care Association of America (HCAOA) challenged the Department of Labor, arguing that such a radical change would destabilize the industry and make care unaffordable for many elderly Americans. They asked U.S. District Judge Richard Leon to eliminate the DOL’s disparity between third-party employment and private employment as criteria for exemption and, secondarily, they asked the court to strike down the restricted definition of companionship services and reinstate the decades-old definition.

In late December, the court ruled that the DOL had overstepped their regulatory authority in this case. Despite pronouncing his opinion that caregivers should be entitled to overtime, the judge ruled that it was up to Congress, not the DOL or the judiciary. He thereby eliminated the requirement that third-party employers must pay overtime to all workers.

The Conclusion (For Now)
On January 14th, the judge ruled all provisions of the enhanced companion care exemption be vacated. This includes both the restrictions on third-party workers and the narrowed definition of "companion care," which essentially means all federal laws regarding companion care remain unchanged - for now. It is possible for the Department of Labor to appeal this decision, so continue to stay tuned as we will update you when information becomes available.

If you are hiring companion care or senior care, it's important to determine the kind of care and the amount of care your loved one needs. If your loved one is independent and only needs someone to help with fellowship and safety, a companion caregiver is likely the most affordable option for you. If your loved one needs more assistance and the schedule is going to require more than 40 hours each week, you should budget for overtime (1.5 times the regular rate of pay) or consider a team of caregivers in order to stay under the overtime threshold. 

If you have more questions about the rulings or your situation, please don’t hesitate to call us for a free personalized phone consultation. We’re here to help!

18 States and 3 Cities Raise Minimum Wage for the New Year

by Breedlove December 30, 2014

Throughout most of 2014, minimum wage has been a hot topic. It’s been 5 years since the federal minimum wage of $7.25 per hour was set and many people think of this rate as the applicable pay rate regardless of their employment situation. However, each state (and some municipalities) can allow a vote to set the minimum wage in their jurisdiction – and many have effective January 1, 2015. So if you live in an area where two minimum wage rates exist, the rule of thumb is you must pay your employee at the highest rate.

If you are a household employer in the following states or cities, please make sure you are paying your employee at least the new minimum wage by the first of the New Year so you stay in compliance with state and city laws.

States:

Arkansas: $7.50 per hour

Arizona: $8.05 per hour

Colorado: $8.23 per hour

Connecticut: $9.15 per hour

Florida: $8.05 per hour

Hawaii: $7.75 per hour

Massachusetts: $9.00 per hour

Maryland: $8.00 per hour

Missouri: $7.65 per hour

Montana: $8.05 per hour

Nebraska: $8.00 per hour

New Jersey: $8.38 per hour

New York: $8.75 per hour (takes effect Dec. 31st)

Oregon: $9.25 per hour

South Dakota: $8.50 per hour

Vermont: $9.15 per hour

Washington: $9.47 per hour

West Virginia: $8.00 per hour

Cities:

San Francisco: $11.05 per hour

San Diego: $9.75 per hour

San Jose: $10.30 per hour

Other states plan to increase their minimum wage during 2015. We’ll keep you updated on those changes, but you can always check your state’s requirements if you have questions.

Employer-Paid Health Insurance: Still Non-Taxable Compensation?

by Breedlove December 19, 2014

The Affordable Care Act has fundamentally changed the way household employees (nannies, senior caregivers, housekeepers, etc.) obtain and pay for health insurance. As a reminder, the individual mandate requires that everyone have a policy or pay a fine. If the employee pays for her own insurance, there's a good chance she will qualify for the federal health insurance subsidy since most domestic workers earn less than 400% of the federal poverty level (about $47,000 per year). As long as she has documented wages (i.e. Form W-2), she'll be able to defray a significant portion of her premium cost.

Another option is employer-paid health insurance. For years, many savvy household employers have included health insurance as part of their compensation package in order to capitalize on the tax advantages of employer-paid health insurance. However, recently a ruling from the IRS on the Affordable Care Act triggered a mild panic. The ruling said that effective January 1, 2014, ALL employer-paid health insurance contributions were taxable to both employer and employee unless the employer purchased the policy through SHOP (Small Business Health Options Program). Deeper in the ruling, there was another statement that seemed to indicate that employers with only one employee were exempt from this portion of healthcare reform.

Since the ruling was issued a few weeks ago, many families, caregivers, placement agencies and accountants/advisors have been talking about the SHOP requirement for non-taxability because of the potential 2014 tax liability. However, lost in all the discussion was the apparent exemption for employers with only one employee - obviously a very important distinction for household employers.

Since both of the statements from the ruling were in conflict with the newly-released 2015 IRS Publication 15-B, we worked with the IRS to make sure we had formal clarification. This edition of The Legal Review will share those findings and hopefully clear up all the confusion about the new health insurance law.

Taxable or Not Taxable?

We were able to get confirmation that there is indeed an exemption for employers with one employee and the IRS is now in the process of revising Publication 15-B. Therefore, families with only one employee can continue to contribute to their employee's health insurance policy and have it be considered non-taxable compensation - even if the policy was not purchased through SHOP.

Families that have 2 or more household employees (i.e. a nanny and a housekeeper) must purchase the policies through SHOP (at www.healthcare.gov/small-businesses) if they want their contributions to be non-taxable.

It's important to note that there is another tax break available when policies are purchased through SHOP. The Credit for Small Employer Health Insurance Premiums (Form 8941) provides a tax credit of up to 50% of every dollar contributed - as long as the family pays for at least half of the employee's premium, the average wage for all employees is less than $50,000 per year and the policy is purchased through SHOP.

The Bottom Line

Therefore, for all new employers who want to make insurance part of the compensation package, we're advising them to procure the policy(ies) through SHOP, even if they only plan to hire one person. That way, it will be treated as non-taxable compensation AND they can take advantage of the Credit for Small Employer Health Insurance Premiums.

For legacy clients who have been reimbursing an employee for her own health insurance policy, they don't have to worry about taxability unless they have 2 or more employees. If they're interested in transitioning to a SHOP policy to take advantage of the tax credit, we're happy to run the numbers to see if the tax savings are worth their time and effort. There are a couple of variables that determine the amount of savings so we'll need to have a quick conversation to give an accurate estimate.

If, for whatever reason, the family doesn't want to get involved with the employee's health insurance, she, of course, can simply buy a policy through the exchange and file for her federal subsidy.

Most new laws have some kinks in the beginning, but the Affordable Care Act may go down in history as the granddaddy of kink-filled legislation. But that's why we're here. When questions arise regarding tax, labor law or HR issues specific to the household employment world, feel free to reach out to us. If the laws or the regs aren't clear, we'll dig until we get an answer and then be prepared to guide families safely through all aspects of compliance.

Department of Labor Ramps Up Worker Misclassification Efforts

by Breedlove October 2, 2014

The most common mistake we see in the household employment industry is worker misclassification – families treating their household employee as an independent contractor by providing Form 1099 to them during tax filing season. In almost all cases, the IRS has ruled that domestic workers should be treated as employees and receive a W-2 to complete their personal income tax return.


Well now the Department of Labor (DOL) is taking notice and acting. Recently the DOL awarded $10.2 million to 19 states to improve the detection and enforcement of worker misclassification. The states are California, Delaware, Florida, Hawaii, Idaho, Indiana, Maryland, Massachusetts, New Hampshire, New Jersey, New Mexico, New York, Oregon, South Dakota, Tennessee, Texas, Utah, Vermont and Wisconsin.

The government is stepping in because when nannies, senior caregivers, housekeepers, etc. continue to be “1099’d,” it takes away tax revenue – specifically revenue for federal and state unemployment insurance. Domestic workers that are misclassified don’t have access to this benefit and also pay more in Social Security & Medicare taxes. Aside from that, the family may be exposed to tax evasion charges if they are caught misclassifying their employee.

Use this news to help someone if you know they currently treat their employee as an independent contractor. Remind them that paying legally is cheaper than they think because tax breaks can offset a significant portion of their employer tax cost. There’s still time to get things corrected for the 2014 tax year.

If you’d like more information about worker misclassification, please visit the Answers section of our website or give us a call. We’re here to help!

What to Know About the Affordable Care Act Before Open Enrollment Begins

by Breedlove September 30, 2014

Lately we've been inundated with questions about health insurance - specifically relating to the Affordable Care Act because the 2015 open enrollment is coming up on November 15th. So to help clear up any confusion families may have, here is a simple Q&A that may help.

What is the Affordable Care Act?

The Patient Protection and Affordable Care Act, commonly referred to as the "Affordable Care Act" or "Obamacare," is a federal law aimed at reducing the overall cost of health care and decreasing the number of uninsured individuals living in the United States.

Is my employee required to have health insurance?

Yes, your employee - like all Americans - is subject to penalties if she does not have health insurance coverage. However, you are not responsible for making sure your employee has health insurance.

Am I required to offer health insurance to my employee(s)?

No, employers are not required to offer health insurance if they employ fewer than 50 workers. However, you are required to provide your current employee and, at the time of hire, any future employee with a notice about the Health Insurance Marketplace.

What is the Health Insurance Marketplace?

The Health Insurance Marketplace is the government-run health insurance exchange - a "one-stop shop" where individuals can compare and purchase health insurance policies. Open enrollment for the Marketplace opens on November 15th for coverage beginning January 1, 2015. Your employee will be able to purchase health insurance through the Marketplace until open enrollment ends on February 15, 2015.

How much will health insurance cost?

The cost of health insurance will vary depending on the state and the options your employee chooses (deductible, co-pay, etc.). After completing an application, your employee will be able to compare prices and coverage options for different health insurance policies. Depending on her income and family size, she may be eligible for a subsidy if she purchases her insurance policy through the Marketplace. However, she must have documented wages in order to get a discounted policy - meaning she must be paid legally. The Kaiser Family Foundation has a helpful Subsidy Calculator to estimate how much she'll save.

If I contribute to my employee's health insurance policy, will I be eligible for any tax breaks?

If you set up a health insurance policy for your employee through SHOP (Small Business Health Options Program) on the Marketplace and pay at least 50% of your employee's premiums, you may be able to take advantage of the Credit for Small Employer Health Insurance. To take this credit, you'll attach Form 8941 to your personal income tax return. The credit is up to 50% of the contribution you pay. For more information regarding the requirements for contributing to health insurance, please contact our office as SHOP is a relatively new program and the details may change.

We understand that many families are tackling this issue for the first time and may still have questions after reading this. Please don't hesitate to send them our way. Our tax experts are happy to help Monday through Friday from 8am to 6pm CST.

 

This Week is National Nanny Recognition Week

by Breedlove September 23, 2014

Any family with a nanny knows how valuable she is to their family’s stability. Well this week, take some time to show it. September 21st – 27th is National Nanny Recognition Week and it’s a perfect time to thank your nanny for all the hard work and effort she puts into caring for your children. Any gesture from the heart will do. Perhaps take her out to a special dinner or give her a gift certificate to spa or surprise her with a paid day off. You can even have your kids make and sign a card for her to let her know how much they enjoy spending time with her.

From all of us at HomePay, we also want to recognize all the families that utilize our services. Your commitment to professional pay is a year-round gift to your nanny whether your realize it or not. This is because you guarantee she’ll have all the benefits and protections she deserves as a professional (retirement income and insurance through Social Security & Medicare, unemployment benefits, etc.) when she needs them. We hope you enjoy treating your nanny to something special this week and that the rest of 2014 is a happy time for you both.

Why Form 941 Should not be Used for Household Employment Taxes

by Breedlove August 26, 2014

When it comes to taxes, the tiniest of details can be the difference between smooth sailing and a giant headache. With the back-to-school hiring rush in full swing, now is a great time to familiarize yourself with a few household employment details (also known as the "nanny taxes," although the payroll, tax and labor laws apply to all types of domestic workers employed by a family). This particular household employment case highlights how a family's personal income tax return became much more complicated after the wrong tax returns were filed.

The Mistake

The Richmond family hired a nanny last year and utilized a local CPA to handle their tax return filings. The CPA made all the family's quarterly state tax payments on their behalf and prepared their year-end documents, but also made quarterly federal tax payments for the family using Form 941.

The Law

The use of Form 941 is for remitting federal quarterly tax payments for commercial businesses. But household employers are not commercial businesses, and according to IRS Publication 926, they should make estimated tax payments using the federal 1040 Estimated Payment schedule. The only exceptions to this rule are if the family already owns a business as a sole proprietor or if they operate a for-profit farm. These estimated payments cover the Social Security & Medicare (FICA) and federal income taxes withheld from an employee as well as the employer's share of FICA and federal unemployment insurance taxes. The taxes are remitted to the IRS in mid-April, mid-June, mid-September and mid-January using Form 1040-ES.

The Mess

When the Richmond's CPA filed their personal income tax return and Schedule H this year, the IRS showed the family owed additional taxes coincidentally equaling the amount of the taxes they sent in on their 941 returns. The family contacted the IRS and an agent informed them of their error in using Form 941. Unfortunately, the Richmonds were already past the 1st quarter of 2014 when they spoke to the agent and their CPA had filed another Form 941 on their behalf.

The Outcome

The family ultimately had to file amended 941 returns for all of 2013 and the 1st quarter of 2014 with instructions to transfer those tax payments to their personal taxes using their Social Security number. This allowed the Richmonds to amend their 2013 personal income tax return and get on the 1040 Estimated Payment schedule for the rest of the 2014. While ultimately the family's CPA had all the family's payroll and tax information correct from the beginning, the mistake of filing a Form 941 instead of Form 1040-ES resulted in hours of additional work and a frustrated client.


Household employment is a highly-nuanced section of the tax code with numerous exceptions and exemptions that don't apply to commercial enterprises. The state and federal complexities, combined with the unique labor law obligations, can create risk for families and liability for their advisors. That's why we were created as a comprehensive "nanny tax" specialist. Founded in 1992, we provide families in all 50 states with an affordable, "no-work, no-worry" solution to household employment payroll, tax and HR obligations.

 

 

Common NannyShare Mistake Disqualifies Family from Tax Breaks

by Breedlove July 17, 2014

NannyShare arrangements have become increasingly popular over the past couple of years. This is because it is significantly cheaper to share a nanny than to employ one alone and both families can capitalize on tax breaks if the nanny is paid legally by both families. But many times, only one family follows through with this commitment. This case is an example of the negative financial consequences of mismanaging the tax and payroll process in a NannyShare.

The Mistake

The Cole family and the Whitman family agreed to employ a nanny to care for their children at the same time. The families settled on a total salary of $32,000 for their nanny with the Coles paying the full $32,000 in wages and getting a reimbursement check from the Whitmans each bi-weekly pay period for their half of the wages. Additionally, after going online to calculate the employer taxes, the Coles estimated that the tax liability would be approximately $1,500 per family for the year. These costs were to be reimbursed at the end of each quarter.

The Law

In a NannyShare arrangement, the law views both families as separate household employers. In order to be compliant, each family must:

- Set up state and federal tax IDs

- Withhold the proper taxes from the nanny's pay

- Prepare and file federal and state employment tax returns and remit their portion of the employee and employer taxes (based on their portion of the wages)

- Provide a Form W-2 to their employee at the end of each calendar year

- File Forms W-3 and W-2 Copy A with the Social Security Administration each year

- Prepare and attach a Schedule H to their personal income tax return

While it seems more convenient to let one family handle everything, this practice is illegal. It also disqualifies the other family - in this case the Whitmans - from taking advantage of the dependent care tax breaks.  

The Outcome

The Coles managed the payroll process on their own and then gave all the paperwork to their CPA at the end of the year. The CPA charged a total of $1,900, which was split between the two families. All told, each family had invested $18,450 into the employment of the nanny. The Coles presented their payroll and tax filing receipts to the husband's HR department and their CPA. They were very pleased to get a tax break totaling $2,500.

The Whitmans also pursued their tax break, but they were denied the $2,500 savings since they had not met all the requirements of the state and federal tax process. Mrs. Whitman's HR department was forced to reject the family's receipts because there was no proof that they paid legally. Aside from losing out on the tax breaks, the Whitmans took on unnecessary risk because any potential wage dispute or unemployment claim filed by the nanny would name the family as an employer. The state - and possibly the IRS - would pursue back taxes, penalties and interest from the family for failing to file the appropriate tax returns.

Domestic Workers Bill of Rights Signed in Massachusetts

by Breedlove June 30, 2014

Following in the footsteps of the states of New York, Hawaii and California, the state of Massachusetts has passed Domestic Workers Bill of Rights legislation that was signed by Governor Deval Patrick into law last Thursday, June 26th. The legislation, spearheaded by the National Domestic Workers Alliance, provides several new labor protections for nannies, senior caregivers, housekeepers and other household employees. While the law will not take effect until April 1, 2015, families need to be aware of the following new requirements:

1. Employees must have at least 24 consecutive hours of rest in each calendar week if they work 40 or more hours per week. If the employee agrees to work on their day of rest, they must be paid overtime (1.5 times the regular hourly rate) for each hour they work that day.

2. A household employee is allowed to take up to 8 weeks of maternity leave if she has worked full-time for the previous 3 months. The maternity leave does not have to be paid, but the family must hold the employee’s job if she decides to return to work.

3. Meals and lodging cannot be deducted from an employee’s wages without their prior written consent.

4. If the employee is a live-in and the family terminates her employment without cause, the family must give written notice and allow the employee to either; 1) Continue living in their home for at least 30 days, 2) Pay for comparable off-site housing, or 3) Give 2 weeks of severance pay to the employee. If the employee is terminated for cause, the family has no housing or severance obligations.

5. A written evaluation of the employee’s work performance must be given after 3 months of employment and annually moving forward if the employee requests it.

6. If the employee works 16 hours or more a week, the family must provide a contract that includes the following information: 
- The rate of pay, including overtime and any additional compensation
- Working hours, including meal breaks and other time off
- Provisions for days of rest, sick days, vacation days, personal days and holidays and whether those days are paid or unpaid
- Information about severance and if transportation costs or health insurance are paid for or reimbursed

If you have any questions about any provisions in the Massachusetts Domestic Workers Bill of Rights and how it may affect your specific employment situation, please call our office at 888-273-3356. We’re here to help.

Being Paid Under the Table Can Delay Retirement

by Breedlove May 23, 2014

When a nanny, housekeeper or senior caregiver is paid legally, they are entitled to certain benefits that are earned through the payroll and tax process. But because many household employees are younger in age, sometimes they don't realize how important these benefits are. In this edition of The Legal Review, the Hanson family finds themselves in a big mess after their long-time nanny decides she's ready to stop working.  

 

The Situation

 

The Hanson family lives in upstate New York and has employed a nanny named Bonnie for the past four years. Unlike most nannies, Bonnie was 60 years old when the Hansons hired her, but had a wealth of experience with childcare as she was a stay-at-home mom for most of her life. Before working for the Hansons, the only job Bonnie ever had was working in a local retail shop for 8 years. With her upbeat personality and her love for children, she was a great fit for the Hansons after their first child was born and they were ecstatic to hear she would take on the challenge of a second child two years later.

 

The Mistake

 

When the Hansons first hired Bonnie, they asked their neighbors how they handled hiring a nanny for their kids. The Hanson's neighbors explained they paid their nanny like they would a babysitter and gave her cash at the end of each week. Bonnie agreed with this arrangement and she was paid in cash every Friday for four years.   

 

The Law

 

When a family hires a household employee to work in their home, they are required to withhold Social Security & Medicare (FICA) taxes from their employee's pay each pay period. Federal and state income taxes - while not explicitly required to be withheld - should be deducted as well to ensure the employee does not get stuck with a large tax bill during tax season.

 

The family is also required to pay a matching portion of FICA taxes, as well as federal and state unemployment insurance taxes. Some states, like New York, also require additional taxes to either be withheld from an employee or paid by an employer. Please visit our state-specific pages for details on the taxes in your state.

 

At the end of the year, the family is required to prepare a W-2 for their employee so they can file their personal income tax return. The family is also required to file Form W-2 Copy A and Form W-3 with the Social Security Administration and prepare a Schedule H to attach to their personal income tax return.

 

The Mess

 

After four years of working for the Hansons, Bonnie was 64 and nearing the age for retirement. In trying to prepare for this exciting time, she enlisted the help of a local CPA to gauge what her benefits would be so she could budget for the next chapter of her life. Unfortunately, when the CPA learned Bonnie had no employment records for the previous four years, he had to be the bearer of bad news and told her she was ineligible for Social Security benefits. This is because the Social Security Administration (SSA) requires a minimum of 40 credits (or 10 years of work) to be accrued before a person can earn retirement benefits - and Bonnie could only prove she had eight years in retail.

 

Bonnie was confused and asked the CPA how she could get credit for the last four years of her working career so she could retire at the end of the year. The CPA explained that the Hanson family would need to catch up on four years' worth of payroll reporting and tax returns in order for the SSA to approve Social Security benefits for her. With this information in hand, Bonnie approached the Hansons, who were understandably embarrassed and guilt-ridden at the thought of their long-time nanny not being able to retire on her schedule. 

 

The Outcome

 

The Hansons wanted to help Bonnie in any way they could. After four years working in their home, she was a valued member of their household and a grandmotherly figure to their children. The CPA Bonnie consulted with happened to have a couple of clients with household employees and told the Hansons to contact Breedlove & Associates about the late tax returns. While he knew the steps they needed to take to make everything right for them and Bonnie, he wasn't interested in taking on four years' worth of payroll and taxes.

 

The Hansons called Breedlove & Associates the next day and we were able to get them caught up on their employer taxes. We set them up as household employers with the IRS and the state of New York, gathered the four years' worth of payroll information for Bonnie, filed the late tax returns, and best of all, sent tax information for the family and Bonnie to the Social Security Administration so Bonnie could get the working credits she needed for retirement. The family unfortunately incurred thousands of dollars in back tax payments and interest, but we were able to get the state of New York to waive the majority of the penalties they assessed. Bonnie will turn 65 in November and she's now set up to retire just in time for the holiday season. 

 

How the Whole Thing Could Have Been Avoided

 

If the Hansons had verified what their neighbor said via an accountant or even a simple Google search, they would have realized paying Bonnie in cash was not the right course of action. When families become household employers for the first time, they often have a laundry list of questions. It's important that they are steered toward a resource that can set them up for success. We're always available for your clients when they need this initial consultation and it's free for them to call. Sometimes a ten minute conversation can save a family like the Hansons thousands of dollars.



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