What Are the Tax Consequences for Parents and Workers Hired to Help with Remote Learning or Childcare?

National Taxpayer Advocate Erin M. Collins posts new blog

Because of the pandemic, many brick and mortar schools have shifted to remote instruction.  However, for a variety of reasons, remote learning may not be a suitable option for every family. To address the particular needs and circumstances of each family, such as health concerns, some have turned to homeschooling pods (small groups of children sharing a learning space led by a pod instructor) or have hired nannies to care for younger children. Parents hiring pod instructors, nannies, and similar household workers may be unfamiliar with tax filing and withholding requirements. As a result, they may find themselves with unexpected tax liabilities or penalties. It is important to understand the tax consequences of hiring a household worker, including whether a worker is treated as an “employee” or an “independent contractor” for both federal and state reporting.

Tax consequences for the parents, nanny, or pod instructor?

It is critical for taxpayers to carefully consider their particular facts and circumstances. There is no one-size-fits-all answer.

If parents deem the nanny or pod instructor to be an independent contractor, they should keep careful records and receipts of all amounts paid. Independent contractors are responsible for paying all self-employment taxes and properly filing their returns. Parents may refer independent contractors to the IRS Self-Employed Individuals Tax Center for more information on how to do this.

However, if parents deem the nanny or pod instructor to be an employee, they will need to consider how to file the necessary forms with the IRS and withhold and pay the required taxes.

As we all navigate the novel circumstances brought about by the COVID-19 pandemic, taxes may not be a parent’s first concern. However, parents need to be mindful of the federal (and state) tax consequences of their childcare or remote learning environments and should consult with a tax advisor as necessary. Families should keep careful records and receipts and consider the use of an employer Dependent Care Flexible Spending Account (FSA) or Child or Dependent Care Tax Credit eligibility. Parents hiring pod instructors or nannies should be informed about the tax consequences and should be equipped to comply with all tax requirements.

Read the complete blog here.