Understanding the Self-Employment Tax Implications for Family Caregivers

Are you providing regular care to a family member or friend? If you’re receiving compensation for your services, it’s important to track your income. Caregiving, even for a loved one, could be considered self-employment and change how you file your taxes.

There are different scenarios in caregiving situations that will determine if you, as a caregiver, can claim additional tax benefits or need to pay an additional self-employment tax on the money you earn from caregiving.

Learn more about the potential tax implications for your caregiving services below.

Do you consider yourself a caregiver?

No matter how you provide care to your family member, it’s important to understand how to classify your work. This way, you can always file your income taxes correctly and easily. 

When you provide care to a family member, if they’re compensating you for your time, they’re often considered your employer. This is because your work is being provided to and for them.

In other words: you could be required to pay taxes on the income you receive as a caregiver. And if you’re not considered an employee, you will still need to report the income you received. But you won’t need to pay self-employment taxes on it.

Non-Professional Caregivers

Whether or not you pay taxes on the income you’ve received while caring for a family member depends on your status as a non-professional or professional caregiver.

If you’re not a professional caregiver and don’t work for or own your own caregiving business, you’re not required to pay self-employment taxes on the income you earn from caring for your friend or relative. However, you may still need to report the income earned on your taxes.

If you’re compensated by an insurance company, you’ll receive a 1099-MISC form, and the income must be reported on your 1040 tax form. But you will not need to pay additional self-employment taxes on the amount earned. 

Professional Caregivers

If, on the other hand, you own your own caregiving agency or small business, you’re considered a professional caregiver.

This means the income you earn from caring for your friend or relative must be reported. It also means you’re required to pay self-employment taxes on the income earned.

This would apply to an individual who owns an adult daycare and cares for one of their family members as part of their job along with other adults. 

If you work for a caregiving agency and are assigned to care for a relative, you’ll pay income taxes on the income you earn.

In this scenario, the company you work for would be paid either by your relative directly or by a government assistance program that your relative is a recipient of. Then the company would pay you and take social security and FICA out of your paycheck.

You would therefore not be responsible for any self-employment taxes. But you still would be required to pay ordinary income taxes on the income you receive from your employer.

Final Thoughts

When you’re providing care for a family member, the last thing you want to worry about is whether you owe self-employment taxes. To navigate self-employment taxes with confidence, make sure to understand the type of care you’re providing and your tax obligations for reporting income earned from this work. You can learn more about caregiving taxes and resources by visiting the IRS’s webpage on family caregivers.

Have you served as a self-employed caregiver to a loved one? Interested to share your story with the SaverLife community? We’d love to speak with you. Complete this brief survey to connect with the SaverLife team.

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