Chief Counsel's Office Focuses on Whether Companion Sitters Are Household Employees

(Parker Tax Publishing August 2016)

The IRS Office of Chief Counsel advised that it is possible that a companion sitter not dealing with a companion sitting placement service could be a household employee of the recipient of the sitter's services. In that situation, the companion sitter would not be considered self-employed and employment tax withholdings would be the responsibility of the person receiving the companion sitting services. CCA 201633034.

In the past, the employment tax issues surrounding companion sitters focused on determining if they were employees of a placement service or if they were self-employed. Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. Under Code Sec. 3506(a) and Reg. Sec. 31.3506-1(b), a person engaged in the trade or business of putting the sitters in touch with individuals who wish to hire them (that is, a companion sitting placement service) is not treated as the employer of the sitters if that person does not receive or pay the salary or wages of the sitters and is compensated by the sitters or the persons who employ them on a fee basis. Reg. Sec. 31.3506-1(c) provides that companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for purposes of the self-employment tax.

Recently, in CCA 201633034, the focus shifted to determining whether or not a companion sitter is a household employee, such that the recipient of the companion sitter's services is responsible for reporting the sitter's employment taxes. If the companion sitter is considered a household employee, the recipient of the services is responsible for obtaining an employer identification number and paying state and federal employment taxes (i.e., social security tax, Medicare tax, federal unemployment tax, and federal income tax withholding). Generally, these taxes are added to an individual's income taxes reported on the individual's federal income tax return.

In addition, if the companion sitter is considered a household employee, both parties are responsible for completing the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. No later than the first day of work, the household employee must complete the employee section of the form by providing certain required information and attesting to his or her current work eligibility status in the United States. The employer is responsible for completing the employer section by examining documents presented by the employee as evidence of his or her identity and employment eligibility. Acceptable documents to establish identity and employment eligibility are listed on Form I-9. The employer should keep the completed Form I-9 in his or her records; it is not required to be submitted to the IRS, the USCIS, or any other government or other entity. The form must be kept available for review upon notice by an authorized U.S. government official.

The IRS Office of Chief Counsel (IRS) advised that it is possible that a sitter not dealing with a companion sitting placement service could be a household employee of the recipient of services. In that situation, the companion sitter would not be considered self-employed. According to the IRS, common law factors would be applied in determining whether the relationship of employer-employee exists.

The IRS suggested adding the following language to training materials on the tax treatment of companion sitters:

"However, a sitter not affiliated with a companion sitting placement service may be considered to be an employee of the individual for whom the sitting is performed, depending on whether the individual for whom the sitting is performed has the right to direct and control the sitter."

Practice Tip: The language suggested does not address what happens if a son or daughter hires a companion sitter for a parent who is not mentally or physically able to direct and control the sitter. The son or daughter would not be the individual for whom the services are performed but would be the one directing or controlling the sitter. In any event, practitioners should be aware that the IRS is looking at this issue and may be prudent to inquire whether a client is the recipient of such services.

For a discussion of reporting and paying employment taxes for household employees, see Parker Tax ¶216,125.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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