What is an Independent Contractor?
As my previous post stated, family child care providers who hire persons to help them care for children should be treated as employees, not independent contractors.
But, what is an independent contractor and under what circumstances might a child care provider hire one?
As I previously wrote, a person who is self-employed in the business of providing substitute child care services is an independent contractor. Such a person must meet a series of conditions before she could be considered an independent contractor and it's rare for this to happen.
However, a person who works for you and is not helping you care for children is probably an independent contractor. This person can be someone who conducts a music lesson, puppet show, or swimming lesson for the children in your care. She is not your employee because she is not working under your direction or control.
Other examples would be persons who clean your home, mow your lawn, care for your yard, or fix things around your home. Again, these people are not under your direction or control.
What are the tax consequences if you hire an independent contractor? If the person is doing work that is exclusive to your business (music lesson, etc.) then you can deduct 100% of the cost as a business expense. If the person is doing work that benefits your family as well (cleaning, yard work, etc.) then you should deduct the Time-Space Percentage of the cost.
If you pay any one independent contractor $600 or more in a year you must fill out IRS Form 1099 Miscellaneous Income and give a copy to the person by January 31 of the following year. You must also file a copy with the IRS by February 28. The purpose of this form is to inform the IRS of such payments so they can check to see if this person reported the money as income. If you fail to send this form to the IRS you will be subject to a $50 penalty. If you paid someone less than $600 for the year you need not file any forms nor pay any federal or state payroll taxes. If you hire a company to do work for your business you do not need to issue Form 1099. Form 1099s are only for individuals who are not employees of a business.
Note: Just because you pay someone less than $600 in a year doesn't mean this person is an independent contractor instead of an employee. If the person is helping you care for children then she is your employee (with few exceptions) no matter how little you pay her or how few hours she works.
This article is the third in a series of articles about hiring workers for your business.
Tom Copeland - www.tomcopelandblog.com
Image credit: https://allianceutah.com/blog/difference-between-employee-independent-contractor/
For further information see my book Family Child Care Tax Workbook and Organizer.
