Are you the boss of your caregiver? Ask questions upfront about these financial pitfalls.

Some families decide to hire a private caregiver instead of hiring an outside party, such as a home care agency. But that doesn’t always mean they avoid the financial and legal tax ramifications of being an employer.  Many nurse registries and employment agencies don’t actually employ or supervise workers; they simply find them and place them in a home. Because of this, the family ends up being the official employer and consequently responsible for salary, taxes and other obligations including verification that the worker is legally entitled to work in the U.S.

Employing a relative or friend can also put a family in the same situation.  Household help is anyone who does help in or around your home according to the National Association of Tax Professionals (NATP).  If you have control and supervision as to what type of work is completed and how, you are the official employer. If you paid a caregiver more than $1,700 in 2009, the tax code requires you to withhold and pay Social Security and Medicare taxes. If you pay the caregiver wages of more than $1,000 in any quarter, federal and state unemployment taxes must also be paid. If the taxes are unpaid, the taxpayer must pay what’s owed, and will face late filing penalties of between 5% and 25% of the underpayment plus interest, according to the NATP.

There are other factors to consider prior to hiring a caregiver.  With home care especially, employee injuries pose one of the biggest financial risks. Federal and state laws require employers to take out workers’ compensation insurance. If there is no policy in place and a caregiver is hurt on the job, the family must pay medical expenses and disability payments. You should not assume your homeowner’s insurance will cover these situations; typically basic homeowner’s insurance will not cover people who are working inside your home. Discrimination or harassment suits from caregivers are another risk. There are umbrella policies with a discrimination rider to provide protection, but these policies are expensive.

How to avoid these potential financial and legal hazards? Hire a home care agency directly, and ensure that the agency is the caregiver’s official employer. This eliminates the financial worries and eases the stressful process of hiring in home care. In addition, a qualified home care agency will provide training, bonding, insuring and pre-screening of their home care employees. This will help you have peace of mind about the person caring for your loved one.

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