Household employee Social Security and Medicare taxes not deducted from pay

[4677]

Last year we hired a weekend caregiver for our 94 year old mother. We have been paying her $500.00/weekend.

The IRS deems that a caregiver (not thru an agency) is an "employee."  

We applied for and received an EIN # and have all the information for the W2, we did not deduct the Social Security and Medicare payments from her pay.

Are we responsible for both her share and ours?

I know my mother will be paying her share of the taxes (as an employer) on her tax return and filing a Schedule H.

[Opus 17]

Yes. (Specifically, your mother is responsible if she is filing the schedule H). If you had withheld those taxes, the wages would have 

Gross $500

SS tax $31

Medicare tax $7.25

Net take-home $461.75.

Then you would have taken the $38.25 that was withheld, doubled it from your own funds, and sent the IRS $76.50 (per week of course).  

Since the net take-home was $500, you have to "gross-up" the wages.  So the aide's paycheck now looks like this

Gross $541.42

SS tax $33.57

Medicare tax $7.85

Net take-home pay $500.00

If she worked for you for 20 weekends, her gross pay that you will report on her W-2 would be 20 X 541.42 = $10,828, not $10,000.  Her SS tax and medicare tax would likewise be 33.57 x 20 and 7.85 x 20 (or however many weekends she worked for you.)  On schedule H you report her gross wages as $541.42 x the number of weeks, and you need to come up with the entire amount for social security and medicare taxes.

**The reason you have to gross up the salary, is that if you pay her half of the SS and Medicare tax, that effectively becomes additional income to her.**

You could try asking the aide to pay her share of the tax--if she agreed to pay you back $38.25 per week, then you could report her gross wages as $500 and not $541.42.  But if that wasn't part of your arrangement, I suspect she would be a bit annoyed to put it mildly, and would have every right (in my opinion) to refuse.  If she questions why her W-2 shows gross wages more than what she was paid, you can show her publication 969 and this post.  Those taxes have to be paid, one way or the other.  

Lastly, you should have been withholding federal income taxes as well, if you ended up paying this person more than $2600.  You should clarify this with your aide for 2024. She should give you a form W-4, and you would use publication 15-T to figure out how much federal income tax to withhold, along with withholding the employee half of social security and medicare.  Maybe start with a little raise, before you start taking deductions.

https://www.irs.gov/forms-pubs/about-publication-926

[4677]

Thank you for your response.

I relayed this information to the caregiver, she says her accountant said to report the $8500.00 (that's the total amount she was paid last year) as the gross income and that she would calculate the payments on her return.

Is that the correct way to do this?  And if so how would she go about that?

If the W2 is filled out without any deductions for Social Security and Medicare taxes won't that be a "red flag"

[RobertB4444]

You need to fill out the W2 with SS and Medicare withheld.  You don't have an option not to.  

Her W2 will show more income than the $8500 that she puts on her return.  It will delay her refund from filing her taxes and result in a letter to her from the IRS.  You should get a W2 to her as soon as possible and tell her to show it to her accountant before she files her return.

@4677 

[Opus 17]

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@4677 wrote:

Thank you for your response.

I relayed this information to the caregiver, she says her accountant said to report the $8500.00 (that's the total amount she was paid last year) as the gross income and that she would calculate the payments on her return.

Is that the correct way to do this?  And if so how would she go about that?

If the W2 is filled out without any deductions for Social Security and Medicare taxes won't that be a "red flag"

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I don't what constitutes a red flag for the IRS, but the accountant's suggestion is wrong.

(Let me change that to probably wrong, for this reason.  If the caregiver was under age 18 at any time of the year, the rules are different.  You need to explain, and we will revise our answers.)

If the caregiver is over age 18, then your mother is required to withhold and pay household employee tax and issue a W-2 (or at least, issue the W-2 and pay  the household employee tax as if it had been withheld, using the calculation I provided.)   By not reporting the household employee tax and not issuing a W-2, your mother would be avoiding her tax responsibilities and could be subject to back taxes with penalties and interest, if caught.  And the caregiver is being deprived of social security credits that may help to qualify them for retirement and disability benefits. 

The accountant is suggesting that you do not issue a W-2 at all, and the caregiver will enter their income on line 1b, which is for household employee wages without a W-2.  This is only appropriate if the household employee was paid less than $2700 during the year, or was your mother's spouse, her own child under 21, or an unrelated child under 18.

[4677]

The caregiver wants a W2 with just the gross income of $8500.00 showing - not the additional Social Security and Medicare taxes taken out.

She said that she will report that payment on her tax return.

As far as I have been directed or understand from all this, I HAVE to report the following:

Gross Wages of $9150.25

Medicare Taxes of $123.50

Social Security Taxes $527.00

Net Wages - $8500.00

[Vanessa A]

How you have been directed, is how it needs to be reported and issued. When you issue the W2, you need to include ALL of the information.  The employee can't just pick and choose what is included on their W-2.  If she would enter a W-2 with no SS or Medicare withheld, it will raise red flags.  Plus, you would be underreporting her income if you just reported wages of $8,500. 

So, if the numbers you have are what has been withheld, then yes, that is what you must report.  All of it, not just the gross wages. 

[Opus 17]

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@4677 wrote:

The caregiver wants a W2 with just the gross income of $8500.00 showing - not the additional Social Security and Medicare taxes taken out.

She said that she will report that payment on her tax return.

As far as I have been directed or understand from all this, I HAVE to report the following:

Gross Wages of $9150.25

Medicare Taxes of $123.50

Social Security Taxes $527.00

Net Wages - $8500.00

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Please note that, although I consider myself reasonably well informed, and my calculation is correct to the best of my ability, I am not your accountant, who you have hired for an expert opinion and who will defend you if you are audited.  You (or your mother) may wish to speak with your own local professional.

With that out of the way, your obligation is to follow the law, not what your caregiver wants you to do.  We have told you what we think the law requires in your case.  If you want to follow the advice of the caregiver's accountant, I would hire them, get them to write an opinion letter explaining why they are correct and why the plain language of the forms and instructions doesn't apply to you, and get them to promise to defend you at audit and pay any penalties or interest if the IRS audits your mother and disagrees with the accountant's opinion.  And make sure they are a CPA or Enrolled Agent (accountant specialty admitted to practice before the IRS).