“Are there times when they are considered an independent contractor?”
In my opinion, this would be rare. The factors that differentiate an independent contractor from a employee include the degree of control that the employer has over the working conditions and performance of the employee. If you control the hours that the person works in the manner in which the person is supposed to perform their task, they are your employee. If you give the person a task but you are not specific as to the exact manner in which the task must be fulfilled, they may be an independent contractor.
For example, I was a church treasurer for a while, and we hired a member of the church to clean. If we had required that person to clean the church every Monday, Wednesday, and Friday between 4 and 6 PM for example, they would be an employee. If we gave the person a task, such as “make sure the church is clean before Sunday service and before the Wednesday meeting“ but left it up to the person’s discretion as to exactly how and when to clean, they are more likely an independent contractor.
If you require that the care provider be in your home on certain days so that you can go to work, I don’t see how they can be an independent contractor, but it depends on the factors and tests listed on the IRS website for independent contractors.
“The amount paid was less than $2300 so a W2 is not required. That said, could the care provider treat the income as business income and deduct expenses?”
The care provider is required to report and pay income tax on all their income regardless of whether they get a W-2 or 1099. If the care provider is an employee is a household employee and does not receive a W-2, they include the income on line 1 of their tax return and write “HSH“ in the space next to the line, to indicate to the IRS that part of the wages was household employee wages. If the care provider wanted to report the income as self-employment, they would file A schedule C, and they report the gross income and can deduct ordinary and necessary business expenses. Then, they pay income tax and 15% self-employment tax on the net profit. So depending on what expenses there really are, the self-employment taxes can outweigh any savings by declaring deductible expenses.
I also can’t imagine the care provider would have very many deductible expenses. The care provider can’t deduct mileage, because driving to and from the care home is their commute and commuting is never deductible, even for independent contractors. They can deduct other items they paid for in the course of providing care, such as snacks or toys, but I feel it would be unusual for a in-home daycare provider to be paying for those things and not the family that employed them. It’s hard for me to come up with legitimate deductible expenses that would reduce the net income from the business to make it worthwhile to report as self-employment rather than as wages.
