RS PHI01401.400 Commonwealth Of Virginia - Earnings Of Home-Based Care Providers And Child-Care Providers
Home-based care providers are individuals engaged to provide domestic and/or personal services in the private homes of eligible adults. Child-care providers are individuals engaged to provide child-care services to recipients of Aid to Families with Dependent Children (AFDC) or income-eligible customers.
A. Home-Based Care Providers' Earnings
Since 1986, the national office of the Internal Revenue Service (IRS) has agreed with SSA's position that individuals providing home-based care services in the Commonwealth of Virginia are employees of the individuals receiving the services and that wages for the services are subject to the Social Security taxes. Home-based care consists of three services: companion, chore, and homemaker.
Ordinarily, as the employer, the service recipient would be responsible for withholding taxes and reporting the wages. However, home-based care providers are normally paid from Title XX, State, and local funds administered by a local Department of Social Services (DSS). Section 3401(d)(1) of the Internal Revenue Code provides, for purposes of income tax withholding, that if the person for whom an individual performs services as an employee does not have control of the payment of wages for such services, then the person having control of the payment of such wages is responsible for withholding income taxes from the wages and reporting them to the IRS. The IRS advises that this provision also applies to Social Security taxes. Therefore, since the local DSS has control of the payment of wages to home-based care providers, the local DSS is responsible for withholding and paying Social Security taxes to the IRS on their wages.
B. Child-Care Providers' Earnings
Payments made to providers caring for children from households receiving AFDC or an income-eligible child-care subsidy can be either wages or self-employment income, depending on where the care is provided.
If the children are being cared for in the customer's (i.e., the AFDC parent's) home, and the care provider does not have a lease interest or ownership interest in that home, the payments are wages. The local DSS is the fiscal agent: it withholds any FICA tax and issues a Form W-2. This arrangement is referred to as “in-home day care.”
If the children are being cared for in the care provider's home, the payments are self-employment income. The local DSS will issue the provider a Form 1099. This arrangement is referred to as “family day care.”
C. Relation to “Nanny Tax Bill”
The earnings of home-based care providers and care providers in the Commonwealth of Virginia are covered by the domestic- services provision of the Social Security Act. This provision is more familiarly known as the “Nanny Tax Bill.”
D. Wage Corrections
If there is a posting problem relating to a home-based care provider or child-care provider payment, and a correction to the earnings record is necessary, use Item Correction (IC) to make the adjustment. The SSA-4500 process does not apply to these types of payments.
If an Employer Identification Number (EIN) is unknown, or information about a payment is needed, contact the worker's local DSS office. Each local DSS office has its own EIN, and is responsible for preparing Forms W-2 for its home- based care providers and child-care providers.
RM 02061.085 - Field Office (FO) Handling of SSA and IRS Reconciliation Wage Reporting Issues
RS 02101.700I - Homemakers and Choreworkers